Uday Kotak Committee's corporate governance report opens gate for appointment of 379 new directors

On October 5, 2017, committee under Uday Kotak's chairmanship along with market regulator Sebi decided to change the face of corporate governance by introducing norms to safeguard and improve performance of listed companies' directors and stakeholders.

Uday Kotak, on that day, said, “This report is a sincere attempt to support and enable sustainable growth of enterprise, while safeguarding interests of various stakeholders. It is an endeavor to facilitate the true spirit of governance.” 

A Prime Database study on 1670 listed companies dated on October 11 outlined various impacts of key recommendations made by the Kotak committee, especially relating to board of directors. 

Number of Directors: (Recommendations of  atleast six directors on the board)

If this recommendation gets implemented, then 379 new directors shall have to be appointed by the listed NSE companies.

Currently, there are 154 companies having 5 directors on board, while 82 companies with 4 directors in list and 19 companies having 3 directors and only 1 company has just 2 directors on board. 

Percent of Independent Directors: (Recommendation atleast 50% of board should comprise of independent directors)

If this takes place, then as many as 326 companies will have to change the composition of the board to ensure atleast 50% of total number of directors are independent. 

Among 326 entities, there 18 companies who will need to appoint 3 independent directors each, 59 companies to have 2 independent directors each and 241 companies to have 1 independent directors each. 

There is 1 company that will have to appoint 7 independent directors each and 3 companies to appoint 5 independent directors each. 

Woman Independent Directors: (One independent woman director)

As many as 637 companies would be in need to appoint one woman independent directors. 

Executive chairperson: (Chairperson of board to be a non-executive director)

At present, there are more than half of 860 companies with chairperson having designation of executive director – all these will have to be changed. 

Roles of Chairperson: (Chairperson, MD and CEO to be seggregated)

A total of 640 companies have appointed same person as Chairperson and MD/CEO – which will be needed to change if the recommendation gets implemented. 

Remuneration of Independent Directors: ( Rs 5 lakh per annum remuneration)

About 3755 of the 5686 independent directorship positions, the total remuneration paid to independent directors was less than Rs 5 lakh. 

Had this requirement been implemented in 2016-17, for all NSE-listed companies, an additional Rs 132.63 crore would have had to be paid to independent directors. 

Non-Executive Director remuneration: (single non-executive director exceeds 50% of total annual remuneration, shareholders approval needed)

In 183 companies, the remuneration paid to a single non-executive director exceeded 50% of the total remuneration paid to all non-executive directors combined.

Director attendance: (At least half the board meetings over 2 financial years, should be ratified by shareholders)

Excluding all cases of mid-year appointments and cessations during 2015-16 and 2016-17, there were 660 directors across 463 companies who attended less than half the board meetings held during these 2 years.

AGM Scheduling: (To take place within 5 months from end of the year)

Of companies which got listed before April 1, 2017, and whose financial year ended on 31st March 2017, only 626 out of 1567 such companies had their AGM within 5 months before 1st September 2017. 

The balance 941 companies had their AGM after 5 months from end of financial year.

Sebi and the Uday-Kotak team has opened the recommendations for public comments. The portal is open till November 04, 2017.