Kotak panel report on corporate governance not a magic wand: Committee members
According to 4 members, the committee adopted an approach of evolution rather than revolution.
Focused on evolutionary steps, the Uday Kotak panel report on corporate governance is not a “magic wand” that will cleanse functioning of listed companies overnight but provides for measures that will hold good for next generation of reforms, according to some committee members.
As part of proposing far reaching measures for improving corporate governance at listed companies, the panel has recommended limiting chairmanship to non-executive directors, appointing at least one woman as independent director and increasing the number of board meetings to five in a year.
The report of the committee, headed by noted banker Uday Kotak, which was submitted to markets regulator Sebi earlier this month has elicited mixed responses. Union minister Piyush Goyal had opined that the report has gone “completely off the mark” even as he opined that there are many things good as well as inappropriate in it.
According to four members who interacted with PTI, the committee adopted an approach of evolution rather than revolution even as they opined that the effort was to create the next generation of corporate governance and make companies future ready.
“This (report) is not an academic treatise on how a company should be governed, but is practical in outlook… the recommendations have largely been made with the longer term outcomes in mind. This (report) is not a magic wand that will cleanse companies overnight,” Deloitte Haskins & Sells LLP Managing Partner and CEO N Venkatram said.
KPMG in India’s Chairman and CEO Arun Kumar said the committee was driven by two guiding principles relating to governance at the board level – protection of the interests of minority shareholders and long-term value creation for all shareholders.
“Corporate governance in India is like the proverbial curate’s egg; excellent in parts but whole there is room for improvement,” he said.
Among others, the committee has suggested that companies should be required to disclose the list of expertise that its board members actually possess. In recent times, there have been instances of alleged corporate governance lapses at some leading corporates.
“We took it as our dharma to basically not be incrementalist and not just tweak things here and there but do things that will hold good for the next generation of reforms,” said Krishnamurthy Subramanian, Associate Professor of Finance & (Inaugural) Alumni Endowment Research Fellow, at Indian School of Business, Hyderabad.
Subramanian, who is also the Executive Director, Centre for Analytical Finance at ISB, said the effort was to create the next generation of corporate governance and try to make a structural break.
“If we want consistent growth of 8 per cent or close to double digit growth apart from other reforms corporate governance has to shape up,” he added.
The panel has also recommended that all companies with public holdings of more than 40 per cent would need to separate the roles of Chairman and CEO by 2020 and Sebi may extend it to others by 2022.
As the CEO is the management position responsible for driving those operations, having a combined role results in monitoring oneself, once again opening the door for abuse of the position, Kumar said.
He also said a board led by a chair is more likely to identify and monitor areas of the company that are drifting from its mandate and to put into place corrective measures to get it back on track.
About the recommendation on splitting the posts of chairman and managing director, Venkatram said the chairman’s primary role is governance.
“When we merge the role of chairman and CEO, then we are legitimising the role of chairman as chairman of the company,” he said, adding that there is a subtle difference between the chairman of a board, which is an oversight and governance role, and that of chairman of a company.
ICAI President Nilesh S Vikamsey said the recommendation would have significant impact on public sector companies and hence the committee has suggested that for select listed firms the same should be applicable from April 1, 2020.
The Institute of Chartered Accountants of India (ICAI) is the apex body of chartered accountants.
“The committee has adopted an approach of evolution rather than revolution… While several changes are applicable from April 2018, many others are staggered between October 2018 and 2020 and in some cases up to 2022,” Kumar said.
Venkatram also noted that the panel report recognises how current day Indian companies are functioning, the practical difficulties they face and governance and disclosure standards listed companies should aspire to attain not only for today but also for tomorrow.
On the flip side, the implementation of the recommendations could pose challenges at least for some listed entities.
While many of the recommendations would enhance corporate governance, Vikamsey said some would be a challenge for companies on account of reasons such as “overlapping of regulators/ regulations” and increase in cost of compliance.
“In a world which is changing rapidly, this (report) does not only look in the rear view mirror to see what events transpired in the past. It looks more holistically to what the future holds, identifying potential governance changes that we need going forward,” Venkatram said.
Public comments have been sought on the report prepared by the more than 20-member committee.
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