 "SEBI")
The Securities and Exchange Board of India (Sebi) has planned a series of steps to ease the regulatory and compliance burden for India Inc. The move comes amid concerns raised by some industry players that recent regulatory changes implemented by the capital markets watchdog are against the stated objective of the ease of doing business.
Among the near-term measures, Sebi plans to make the board evaluation process voluntary for listed companies. The regulator is also formulating an ‘implementation standard’ for specific regulations, which will help ease any difficulties or ambiguities about any new or existing framework.
“At Sebi, we are committed to capital formation in the economy and seek to facilitate this through a combination of building trust in the system and facilitating the ease of doing business. In recent times, we have received feedback that there is a desire for greater clarity in terms of the implementation of our regulations. In the absence of clarity, there is a propensity to over-engineer implementation, which detracts from the ease of doing business. This has led us to think about the possibility of facilitating a mechanism for standard setting led by the industry itself,” Sebi said in a letter to several industry bodies last week.
Business Standard has reviewed the copy of the letter.
The regulator has further asked the industry to indicate three to four regulations in which implementation standards could be introduced on a pilot basis. The project will be carried out under the aegis of the exchanges and chaired by an industry leader, Sebi’s letter states.
At present, under the Sebi (Listing Obligations and Disclosure Requirements) Regulations, evaluations of individual directors, chairperson, committees, and the board as a whole are mandatory.
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The listed company’s corporate governance obligations also require specifying the responsibilities of the various individuals on the board and conducting an evaluation of the same. Board evaluations can serve as a basis for the extension or continuation of an independent director or others in key positions and their remunerations.
Currently, the Companies Act, 2013, also prescribes an annual evaluation of the performance of the board, committees, and directors.
The market regulator’s stance to review the board evaluation process comes after a thorough review of disclosure requirements made by companies.
Proxy advisory firms said the current framework needs review, but rules should be further strengthened instead of making them voluntary.
“Ideally, we should have started board evaluation as a voluntary policy and then made it mandatory. We began by making this mandatory. There appear to be two issues. The first is based on the evaluation in one year, the changes in the process for the next year need to be spelt out, and progress monitored. The second is the evaluation itself. Most directors score four out of five, defeating the purpose of this exercise. The entire process needs to be strengthened,” said Amit Tandon, founder, and managing director, Institutional Investor Advisory Services India (IiAS).
Industry experts said that such evaluations help in reviewing the skill sets of those serving on the board, ensuring diversity and independence, and encouraging succession planning.
“The larger point Sebi is making is that disclosures by companies should not be mindlessly done and can become a tick-box exercise. Also, when disclosure requirements are made voluntary, investors would be able to discern which companies are truly adopting good practices and making better disclosures in the true spirit,” said Shriram Subramanian, founder, InGovern Research, a proxy advisory firm.
