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Sebi panel recommends minimum 6 directors on company boards

Author: IANS/Friday, October 6, 2017/Categories: Regulatory

Sebi panel recommends minimum 6 directors on company boards

Mumbai - Securities market regulator Sebi said that a committee formed by it to look into corporate governance has recommended a minimum of six directors on the board of listed firms.

The recommendation was made by a committee formed by Sebi on corporate governance in June 2017 under the Chairmanship of Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank.

The committee was constituted with a view to enhance the standards of corporate governance of listed entities in India.

The committee consisted of government officials and representatives from industry, professional bodies, stock exchanges, apart from academicians, lawyers and proxy advisors.

At present, the Companies Act, 2013, requires a minimum of three directors on the board of a public limited company.

"The board of directors plays an important role in a company's governance and performance... it is crucial that a sufficient number of directors with diverse backgrounds and skill sets are available on the boards of listed entities to fulfill these functions and obligations," the committee's recommendation report said. 

"Therefore, the committee recommends that for any listed entity, a minimum of six directors should be required on the board of directors." 

Further, the panel suggested separation of powers of the chairperson and CEO or MD which it said provided a better and more balanced governance structure.

"The committee observed that such separation, at least at the stage of introduction of the construct,may be more relevant where public shareholders constitute a large portion of the shareholding of a company," the report said.

"In this regard, the Committee considered various thresholds and concluded at least 40% of public shareholding would be an appropriate threshold. Further, in view of the fact that this would require a significant transition from the existing requirements, the Committee believes that listed entities should be given sufficient time to undertake such a transition."

Currently, Companies Act states that an individual shall not be appointed or reappointed as the chairperson of a company as well as its MD or CEO at the same time unless the articles of such company provide otherwise or the company does not undertake multiple businesses.

On the minimum number of members required for calling a board meeting, the committee recommended that the quorum for every board meeting of the listed entity should be a minimum of three directors or one-third of the total strength of the board of directors, which ever is higher, including at least one independent director.

As of now, the Companies Act requires a quorum of one-third of the total strength of the board of directors or two directors, which ever is higher, for every board meeting. 

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