Changes herald new era for corporate governance

Be it the Infosys turnaround on Narayana Murthy’s allegations on Panaya, the Tata-Mistry stand-off, the Satyam-Maytas scam or the Kingfisher-Mallya turn of events, each time the functioning of boardrooms has put the need for transparency and accountability in corporate governance in India at centre stage. The recent acceptance of numerous recommendations of the Kotak Committee by the Securities and Exchange Board of India seeks to make way for an inclusive functioning of company boards to keep the interests of stakeholders above the interests of promoters as a “custodian”.

Among the key changes coming up in the area of corporate governance, the offices of chairperson and chief executive officer or managing director (CEO/MD) cannot be held by the same person with effect from April 2020. Listed companies will need to rework their organizational structures to make way for two separate power centres, to avoid conflicts of interest in the governance of companies and functioning of boards.

The practice of promoters of listed companies sitting as independent directors on each other’s boards through board interlock structures has now been effectively done away with. Hence a promoter will no longer be able to borrow an independent director from another board where the promoter is sitting as an independent director.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon.