To exhort listed companies and their top executives to follow 'good business practices', regulator Sebi on Thursday cleared new corporate governance norms that require them to justify CEO salaries, put in place whistle-blower policies and have orderly succession plans.
The new norms were cleared by the Sebi board on Thursday and the relevant provisions would be incorporated in the listing agreement soon, Sebi Chairman U K Sinha said. Speaking to the reporters after meeting of the board, which also cleared a long-term policy for mutual funds, Sinha also said that any decision on the lapsed ordinance that granted greater powers to Sebi needs to be taken by the government.
The board also cleared new KRA (KYC Registration Agency) Regulations that would make it easier for the investors to comply with Know Your Client (KYC) requirements across various segments of the capital markets. The approval by Sebi board to the new corporate governance norms follows months-long discussion among various stakeholders on draft regulations released last year.
The new norms seek to check excessive salaries paid to top executives of listed companies by requiring them to justify such payments, as also all related party transactions with entities linked to promoters and directors.
The companies would also need to adopt a whistle-blower policy for employees, while the number of directorship a person can hold on company boards would be capped, among various other measures to safeguard the interest of minority shareholders.
The new norms provide for greater oversight by minority shareholders and independent directors and check any unjustifiable payments to related parties. They also seek to bring in a greater alignment of CEO salaries with the performance and goals of the company, while requiring disclosure of ratio of remuneration paid to each of their directors and their median staff salary.
Similar provisions have been made in the new Companies Act. Sebi had earlier said that "on average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect".
Through these measures, Sebi is seeking to adopt better global practices without increasing the cost of compliances, so that confidence of the investors is brought back to market.
Among other major decisions, Sebi board on Thursday cleared the much-awaited long term policy for mutual funds, which includes various proposals including potential tax benefits, for the future growth of the sector.
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