How much information to share with promoters? Sebi to decide soon

Kotak panel is also discussing the issue of independent directors, a matter that came up during the boardroom battle in the Tata Group after the ouster of Cyrus Mistry as chairman.Company SummaryNSEBSEInfosysLoading data…


MUMBAI: The Uday Kotak panel on corporate governance is debating, among other matters, rules pertaining to the sharing of information with promoters who are not board members, Securities and Exchange Board of India (Sebi) whole-time member S Raman said in an interview.

“Corporate governance is always a very evolving subject,” said Raman, who handles the corporate finance portfolio. “A few of the subjects which were in sharp focus in recent controversies, like the independence of independent directors, are one of the subjects which we have given.”

The Sebi committee was set up in June to review corporate governance rules since the last such exercise was conducted more than a decade ago. However, given the controversies referred to above, the panel’s deliberations have gained a certain urgency.

“Another question coming up is, should a promoter get information through a company when they are not present on the board,” Raman said. “So the committee is having extensive discussions on this — if there is a way to formalise this kind of information given to the promoters even if they are not representatives of the board. What, how and at what point of time can information be given and with all the paraphernalia surrounding it so it is done properly — it is a grey area.”

In the recent battle between the Infosys founders and the board, one of the arguments pertained to information that had been sought.

Infosys co-founder NR Narayana Murthy alleged that a board member wanted him to sign a non-disclosure agreement if he wanted details on the severance pay given to former CFO Rajiv Bansal. Raman’s comments pertaining to the Kotak panel were general in nature and made no reference to any specific companies.

“If you are a large promoter there is a view that as a matter of right you have to have some information, since you have a sizeable stake. But the other side of the argument is that you’re not a representative of the board. These are very true conflicts,” Raman said.

“This committee has taken it upon itself to examine this grey area and make it black and white and then say this is the information that can be given to promoters even if they aren’t on the board and at what point of time, etc. The important point is establishing an institutional formula through which these kind of issues can be addressed.”

The panel is also discussing the issue of independent directors, a matter that came up in the boardroom battle in the Tata Group that was sparked by the ouster of Cyrus Mistry as chairman of Tata Sons last year.

“It is not unique to India that independent directors aren’t truly independent,” Raman said. “Throughout the world regulators have been grappling with this issue. This is one of the main subjects the committee is deliberating on.”

The regulator set up the committee under the chairmanship of Kotak, executive vice-chairman of Kotak Mahindra Bank, to advise it on issues relating to corporate governance.

In 1999, the first panel on corporate governance under the chairmanship of Kumar Mangalam Birla was set up to advise the regulator on raising corporate governance standards, the result of which was the introduction of the listing agreement. Subsequently, in 2003, the rules were reviewed by a committee headed by Narayana Murthy.

The current 24-member panel includes representatives from stock exchanges, professional bodies, other companies, investor groups, law firms, academics, research professionals and Sebi officials. The panel is expected to submit its report to the regulator in a month or two.


The panel is also looking at addressing issues on step-down subsidiaries that are allegedly being used for money laundering, the role of independent directors, auditing practices in listed companies, enhanced disclosure on material information and how to facilitate voting.

“Layered companies are used most of the time for money laundering and tax evasion and SIT (the special investigation team on black money) and also prime minister have made comments on the subject,” said Raman, who will be completing his five-year term at Sebi on September 6.

“We are also examining this issue, how many layers, what type of institutions companies can have. Board evaluation, auditing practices and issues faced by investors on voting we are examining.”

He also cited audit-related issues in the banking industry.

“You will see there is a lot of deviation on amounts declared by the company after audit and what the regulator has subsequently found,” Raman said. The liability of auditors in such situations and improving their performance is being debated.

“Can a regulator take a position that if an audit has been ineffective, that firm can be blacklisted from doing audit within the regulatory domain of that particular regulator, say in the case of banks by RBI or if in case of entities regulated by Sebi?”

Raman, 65, who was previously the chairman of Canara Bank, said the committee is also examining whether evaluation of directors should be external, internal or just by the chairman. “The committee is also looking at disclosure and transparency-related issues,” he said.

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