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Sebi okays new corp governance code

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Sebi chairman UK Sinha
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The Securities and Exchange Board of India (Sebi) on Thursday approved a new corporate governance code aimed at improving transparency and disclosure standards of listed companies in India.

The norms, due to come into effect from October 1, cover a wide range of subjects like CEO salaries, women on board, succession plans and mandatory whistle-blower policy.

The fine print is still awaited, but minority shareholders are expected to welcome the new norms, while majority stakeholders may have reason to worry.

Sebi's norms come against the backdrop of demands for clear information on how Indian firms are run. The norms are expected to make stocks attractive to retail investors again, who have been selling heavily since 2008 due to trust deficit.

The new rules are consistent with the new companies law ratified last year to enhance shareholder rights.

"Given the initial snippets announced by Sebi, it appears the regulator is exceeding its brief and even stepping into the shoes of the Companies Act under which a company is formed," said a director who oversees substantial stakes in leading companies as an institutional investor.

Sebi norms specify that companies need to justify excessive executive salaries. This is expected to invite a big "no" from corporates; but then, making it part of the listing agreement, they have no choice but to follow Sebi's diktat.

Speaking to dna on condition of anonymity, senior management of a few listed corporates said that Sebi as a watchdog needs to focus on protecting small investors and ensure orderly development of the capital market. "Getting into micro management and linking such conditions by enforcing the Clause 49 of the listing norms is the only way that will compel corporates to follow the mandate," said a senior independent board member.

But not all are against the Sebi norms. "Small investors have be crying foul over the manner in which CEOs, including government appointed ones, were getting fabulous salaries despite companies being in the red," said a promoter of a research firm.

Besides, those in favour of the new Sebi norms say the mandatory nomination and remuneration committee for salary to be chaired by an independent director was a step in the right direction, rather than existing board deciding on the chairman's remunerations.

Restricting independent directors to seven companies was also commendable as in the thirty-day period around board meetings, it was practically not possible for independent directors to attend all meetings.

The employee stock options being withdrawn for independent directors and nominee directors not being permitted the dual role of being independent directors have also applauded by representatives of small investors.

So long nominee directors were also appointed as independent directors. This also helped the company in fulfilling obligations of an independent director on board at the same time ensured the vote count required for board decisions.

Most market observers , however awaiting the details of the new listing norms to chart out their future course of action.

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