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Open in new tab The Detachment Dilemma: Cooling-off period for 2 term Independent Directors
Avinash Shetty, Manager l corplaw@vinodkothari.com
| Table of contents |
| Introduction |
| Role of IDs |
| Appointment and Tenure |
| Cooling Off period |
| Conclusion |
Introduction
The year 2024 will witness one of the first and biggest board transitions when it comes to Independent Directors (“IDs”) serving for a decade in the Indian public companies, either listed or unlisted. This is because the applicability of Section 149 of the Companies Act, 2013 (“Act”) became applicable from the 1st of April, 2014 wherein IDs were allowed to hold office for a maximum tenure of upto 5 consecutive years and be associated as such for not more than 2 such terms. The tenure of IDs held before the applicability of the Act was grandfathered.
Following the conclusion of the two terms on March 31, 2024 (or, if the appointment was effective till the 2024 AGM, then the AGM date), more than 130 IDs across nearly 75 companies have ceased their roles[1]. As of March 31, 2023, there were 198 companies within the NIFTY 500 that had 375 IDs whose tenure exceeded 10 years. Notably, 14 of these directors had served on their respective boards for 30 years or more.[2] As the maximum tenure for IDs is two consecutive terms of five years each, followed by a cooling-off period of 3 years, an extremely pertinent question comes up on the continued association of these outgoing IDs with such companies.
Role of IDs
If corporate governance is all about rising above the interests of limited stakeholders, IDs as an institution form the very lynchpin of corporate governance. IDs perform a number of critical functions, including but not limited to bringing independence,, expertise and objectivity to Board discussions, balancing stakeholder interests, and offering unbiased opinions during board discussions on issues such as risk management, related party transactions and board performance. Appointment and participation of IDs in decision-making proceedings have been kept at a higher pedestal as compared to other categories of directors when it comes to board independence and ensuring a proper mix of independent and non-independent directors.
Several requirements are linked with appointment and presence of IDs under the Act as well as the SEBI Listing Regulations, including the following:
- The presence of IDs is a must to constitute a quorum for the meetings of the Board of Directors of top 2000 listed entities.
- The composition of the Audit Committee, Nomination and Remuneration Committee (“NRC”), Stakeholders Relationship Committee, and Risk Management Committee of listed entities must include IDs.
- Only IDs have the power to approve Related Party Transactions (RPTs) of listed entities in Audit Committee meetings.
- IDs of listed entities are required to be appointed to the Boards of their material subsidiaries[3].
- IDs are also responsible for reviewing the performance of non-IDs and the Board as a whole.
- Whistleblowers have direct access to the Chairman of Audit Committee, who is responsible for addressing their concerns/ grievances, including potential fraud allegations.
- The committee of IDs is required to provide a report, which is to be filed with the stock exchange, recommending the draft scheme of arrangement, ensuring that the scheme is not detrimental to the shareholders of the listed entity and has compensated the eligible shareholders for fractional entitlement.[4]
Appointment and Tenure
The appointment of IDs on the Board of an unlisted public company requires an ordinary resolution to be passed by the shareholders and a special resolution in case of re-appointment, based on the recommendation of NRC and the approval of the Board.
In case of listed entities, the appointment and re-appointment of an ID on the Board will require the approval of shareholders by way of a special resolution. However, if the resolution for the appointment of an ID fails to be passed by a special resolution, it may still be considered passed if the following dual conditions are satisfied:
- There is an ordinary majority of all the shareholders, including the promoters and promoter group;
- There is an ordinary majority of the public shareholders, that is, disregarding the voting of the promoters and promoter group.
Cooling Off Period
The cooling-off period for IDs is prescribed under the Act as well as Listing Regulations. It can be categorized as: (a) Pre-appointment cooling-off period and (b) Post -appointment cooling-off period.
Pre-appointment cooling-off period for an ID:
- The Act prohibits IDs from having any pecuniary relationship with the company, its group, their promoters or directors, during the present or past two preceding financial years preceding the appointment. However, remuneration as a director or any other transaction not exceeding 10% of IDs total income is permitted.
- The Listing Regulations are more stringent and require IDs to have no material pecuniary relationship with the company, its group, their promoters, or directors, during the present or past three financial years preceding the appointment, apart from remuneration.
- Further, the Act and Listing Regulations prohibit the appointment of a person as an ID if he/she is or has been a KMP or employee of the company or group entities during the past three financial years. However, relatives of employees other than KMPs are permitted to become IDs.
- The proposed IDs in the last three FYs should not be an employee, proprietor, or partner of :
- Any legal or consulting firm that has had transactions with the company or group entities amounting to ten percent or more of the gross turnover of such firm.
- A firm of auditors, company secretaries in practice, or cost auditors of the company or group entities.
- In respect of relatives of IDs:
- They should not be indebted to the Company, its group, their promoters or directors beyond a specified amount, nor should they have given a guarantee or provided any security in connection with the indebtedness of any third person to these entities or individuals in the current or past three financial years.
- The pecuniary transaction or holding of securities by relatives in the listed entity or its group should not exceed 50 lakh rupees or two percent of the paid-up capital during the current or past three financial years, nor should they have any other pecuniary transaction or relationship with these entities amounting to two percent or more of their gross turnover or total income.
Post-appointment cooling-off period for an ID:
Unlike the pre-appointment cooling-off period which is evaluated and examined almost every year irrespective of whether there is a new appointment or not, the post-appointment cooling-off period has assumed a never-before noteworthiness. The obvious reason is as mentioned above, i.e. due to the first mega ID transitions on the board of a significant number of IDs in public companies. The relevant extract of Section 149(11) of Act which lays down the requirement is reproduced below:
“(11) Notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director:
Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.”
Going by the language of the law, it seems an ID who has completed two consecutive terms of 5 years cannot be associated with the company in any manner during the cooling-off period. Further, it is understood that the provisions start with a generic reference by saying “no director” but then become specific to say “such independent director”. However, in the proviso, the reference again becomes generic. Also the phrase “any other capacity” is broad, barring any possible positions such as a consultant or an adviser. These positions cannot be occupied indirectly too, the term “indirectly” seems to include the appointment of any company or firm where the ID has a substantial stake. The possible intent of these provisions is that the IDs should not exploit their past relationship with the company (during the time of being an ID) to gain an advantage after their term, as this may create a conflict of interest with their duties as an ID.
This is one possible view, and obviously, a conservative one. This view is premised on the principle that the association of the ID in any form is likely to get his some pecuniary interest, and this continuing pecuniary interest during the cooling off is alien to the whole principle of cooling off. Hence, the cooling off is like sampoorna vairagya.
There is another view, however. This view seeks to connect the cooling off with the “come back director”. That is, the ID who intends to come back after the 3 years’ cooling off and occupy the position as an ID should maintain abstinence during the cooling off. However, for the one who is content at not coming back, there should be no objection to the ID occupying a position other than as an ID.
This interpretation is based on the interpretation of the language of the proviso to Section 149(11). Since, the language of the proviso – it does not say “such independent director shall not”; instead, it says “an independent director shall not”. Therefore, the bar in the proviso is an independent bar, and not a mere qualification of the cooling off period itself.[5]
There are merits in both the views. The first view is grounded on the principle that indispensability is fatal to independence. If the ID during his term creates a continuing necessity of his services, his independence is bound to be questioned. The ID serves limited stint, during which he serves the company with objectivity and independence, and once his twin terms are over, he should allow the inevitable – a change. After all, what could be the justification for the company to lean on him to the extent of needing his services even during cooling-off?
The other view is based on the possibility of the ID having developed an understanding of the company’s business model and its functioning to the extent that losing his association after 10 years will be adverse to the company’s interest. After all, he does not intend to come back as an ID even after 3 years.
A question comes – can the ID offer one-off consulting services or professional advice to the company during the cooling off? Offering of professional advisory services, without any fixed relationship or commitment, is allowed pre, during and post retirement. As the safe harbour provision under the Act and Listing Regulations allows IDs to have a pecuniary relationship with the company and its group entities upto 10% of their total income, in addition to their remuneration.
Since the word in the proviso is “associate himself with the company in any other capacity”, a person offering one-off professional services does not have an “association”.
The real issue is not professional services. Quite often, these IDs are actually transitioned to other roles in the companies. For example, the erstwhile ID is appointed as NED, or, in some cases, ED. As regards the change of role into an ED, Listing Regulations mandate a cooling-off period of one year for the transition of IDs who have resigned from the Board and then joined as an executive director or WTD in the same company, holding, subsidiary, associate company or any company belonging to the promoter group. SEBI in its Board Meeting[6] noted that there could be valid reasons for an ID to transition to an ED or WTD, such instances where an ID knows that he/she may move to a larger role in the company in the near future, may practically lead to a compromise in their independence.
Cooling-off period in foreign jurisdictions
As far as the cooling-off restrictions in foreign jurisdictions are concerned, one can only notice the pre-appointment cooling-off period and not vice-versa. Some of these have been discussed below:
- The UK Corporate Governance Code, 2018[7] provides the cooling-off condition for the appointment of a non-executive director. The director should not have been an employee of the company or group in last five years; have no material business relationship with the company, either directly or indirectly in last three years; and has not served on the board for more than nine years from the date of their first appointment. However, provisions are required to be followed on a ‘comply or explain’ basis.
- The NASDAQ [8]and NYSE[9] Listing Standards restrict a person from being appointed as an ID, if they have been an employee of the listed company or had a material relationship with the listed company in the past three years.
- The Luxembourg Stock Exchange Principles[10] sets out the criteria to be considered by companies for appointment of ID which requires the director to not be an executive or MD of the company or an associated company in the last five years; should not be an employee in last three years; and has not served on the board for more than twelve years as non-executive or supervisory director.
- The SGX Code of Corporate Governance 2018[11] requires that an ID must not have served as a director or employed in the same company or related corporations for the past three financial years.
Conclusion
The provisions around the pre-appointment cooling-off period are pretty clear in terms of being interpreted and examined, however, that does not seem to be the case for the post-appointment cooling-off period where the letters of law suggest a complete exile for the outgoing ID as far as the concerned public company is concerned. However, the practice by the corporates tends to suggest otherwise. Several companies can be found to have allowed the continued association of their ex-IDs in some sort of other positions so as to avail some sort of services whether in consulting or anything like. Eventually, there is also a conscience call for the ID – can he be said to have compromised his independence, if he nurtures an interest in the company after he demits his office.
[1] https://www.business-standard.com/industry/news/from-ril-to-adani-power-top-firms-see-cessation-of-independent-directors-124040400939_1.html
[2] https://cdn.vahura.com/site/media/docs/the-great-board-refresh-2024-roundtable/The-2024-Board-Refresh-Report-by-IiAS.pdf?v=1696864425
[3] “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.
[4] Reg. 37 of LODR r/w SEBI Scheme Circular
[5] Corporate Governance – Miles travelled and miles to go – Vinod Kothari & Company, 2024
[6] https://www.sebi.gov.in/sebi_data/meetingfiles/jul-2021/1626155485805_1.pdf
[7] https://media.frc.org.uk/documents/UK_Corporate_Governance_Code_2018.pdf
[8] https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/Nasdaq%205600%20Series
[9] https://nyseguide.srorules.com/listed-company-manual/09013e2c8503fca9
Relinquishment of source of profit in favour of an RP: also an RPT
Mahak Agarwal | corplaw@vinodkothari.com
The broad spectrum of the definition of Related Party Transactions (RPTs) under the Listing Regulation, continues to be an error prone area in terms of compliance. A recent SEBI ruling has further strengthens this aspect where the phrase ‘transfer of resources, services or obligations’ has been explained in an extremely new dimension with a commendable insight from the authorities which again shows that the regulators can no more be restricted by the imaginary boundaries placed by the corporates when it comes tightening the loose ends of corporate governance.
This article delves into the basis which the Regulators considered for concluding a mutual understanding and agreement between related parties to be an RPT notwithstanding the contention of the company. The essential question of law involved in this case was whether the allocation of certain products and geographic areas between RPs constitutes an RPT. The article contains our analysis of SEBI’s order in the matter affirming the said stand.
Read more →IRDAI notifies CG Regulations, 2024
Mahak Agarwal | corplaw@vinodkothari.com
Introduction
The Guidelines for Corporate Governance (‘2016 Guidelines’) for insurers in India have been around for close to a decade now. These Guidelines were initially brought as an update to the then 2009 Guidelines for the purpose of aligning the same with the extensive changes to the governance of companies brought about by the Companies Act, 2013. As such, the new Guidelines were framed to be mostly in line with the Act of 2013 except certain provisions such as requiring the CEO to be a WTD of the Board (where the chairman is NED), prescribing fit and proper criteria for directors, requiring certain additional committees, having only profit criteria for CSR applicability, etc.
Through the years, these Guidelines have served as a valuable source of direction in ensuring corporate governance for insurers; laying down guidance for the composition, roles and responsibilities of the Board, functions of various Board Committees, appointment and remuneration of KMPs, disclosures in financial statements, etc.
Read more →Electoral bonds junked: consequences for donor companies
– Payal Agarwal, Senior Manager (corplaw@vinodkothari.com)
In a recent Supreme Court ruling in the matter of Association for Democratic Reforms & Anr. v/s Union of India, Electoral Bond Scheme (EBS/ Scheme) was declared as unconstitutional, including certain amendments to section 182 of the Companies Act, 2013 (“CA”), amended vide the Finance Act, 2017 as arbitrary and violative of the Constitution of India (COI).
Naturally, a question arises: What is wrong? Contributions to political parties? No. It is only the opacity of the recipient which has been hit. Hence, if companies have contributed, they couldn’t have kept a shroud of secrecy over the same.
Two, if companies had to disclose, and the amendments on 2017 are now junked, does it mean companies have to go back and disclose? It doesn’t seem so. In fact, the apex court itself has taken care of the actionables and put the burden of disclosure on the Election Commission of India (ECI).
Corporate houses, apparently, the largest contributors to electoral bonds, have expressed concerns on what will be the implications of the ruling on donor companies. Several questions arise – What has been declared unconstitutional and what is still valid? What would be the fate of the political donations already made? What actionables arise on a company having made donations to political parties through electoral bonds or otherwise? In this write-up, the author has attempted to analyze the same in light of the 232-pager ruling.
Section 182 of CA – Pre and Post Finance Act 2017
In order to understand what has been rendered unconstitutional and why, let us analyse the provisions of section 182 of CA as it stood prior to the amendment pursuant to Finance Act 2017 v/s how it stands today.
| Particulars | Position prior to Finance Act, 2017 | Position post Finance Act, 2017 | Whether unconstitutional as per SC ruling? |
| Limits on political contribution – Proviso to Sec 182(1) | Aggregate value of contribution to political parties cannot exceed 7.5% of 3-years’ average net profits | No maximum limit on political contributions | Yes. The SC concluded removal of limits to be “manifest arbitrariness” for removing a classification without recognising the harms thereof. |
| Disclosure in financial statements – Section 182(3) | Contributor company to disclose names of each parties against the total amount contributed to such parties | Only total amount contributed to be disclosed, without disclosing names | Yes. The SC concluded this to be an “essential” information for effective exercise of voting, and hence, non-disclosure as an infringement to the right of information of voter under Article 19(1)(a) of COI |
| Mode of contribution – Section 182(3A) | New insertion pursuant to Finance Act | Political contributions to be made only through banking channels (account paying cheque/ bank draft/ ECS) and through instruments issued under a scheme for political contributions (electoral bonds) | No impact. However, the Electoral Bond Scheme has been declared to be unconstitutional. |
Consequences for donor companies
The SC ruling does not declare “political donations” per se as unconstitutional or invalid, what is rendered violative of constitutional rights is the Electoral Bond Scheme and the amendments to section 182 of CA vide Finance Act, 2017 permitting unlimited and anonymous contributions to political parties.
The legal implications of declaring a statute unconstitutional has been discussed in various rulings in the past, such as, re Behram Khurshid Pesikaka v. State of Bombay, and others. These say the consequences are dealt with by the court only. In the present matter of Electoral Bond Scheme, the SC has directed SBI and the Election Commission of India to disclose the details of contributions received through electoral bonds, and refund the non-encashed amounts to the donor.
In essence it does not seem apt that any burden will be cast upon companies for going by a law which was valid till it was scrapped. Hence, no adverse implications should follow for the donor companies. However, for the sake of its corporate duty, a company which has contributed in the past may now do a disclosure in the forthcoming annual report. Thus, The omission of disclosure of particulars of political donations made along with names of the parties, between FY 2017-18 to FY 2022-23, may be made good by companies in the financial statement for the FY 2023-24 giving details of contribution made along with names of the political parties for each of the previous financial years, along with the current FY 23-24.
Principle of “manifest arbitrariness”
Having reference to various rulings and judicial precedents, the SC has summarized that the doctrine of “manifest arbitrariness” can be imposed to strike down a provision. Such a proposition can be applied where:
- the legislature fails to make a classification by recognizing the degrees of harm, and
- the purpose is not in consonance with constitutional values.
In the context of permitting unlimited contribution to political parties, on the grounds of removing classification between donations by “individuals” v/s “companies”, or between “loss making companies” and “profit making companies”, the degree of potential harm has been ignored. Section 182 was enacted to curb corruption in electoral financing, however, the amendment allowed companies, incorporated for a specific purpose as per their MoA, to contribute unlimited amounts to political parties without any accountability and scrutiny. This may also facilitate incorporation of “shell companies” solely for the purpose of making such political contributions and permit undue influence of companies in the electoral process, thus violating the principle of free and fair elections and political equality.
The hon’ble SC has ruled the deletion of maximum limit as “violative” of COI and “manifestly arbitrary” for not recognising the degrees of harm in removing the classification between –
- Political donations by “companies” and “individuals” where the ability to influence electoral process is much higher with the former, since “Contributions made by individuals have a degree of support or affiliation to a political association. However, contributions made by companies are purely business transactions, made with the intent of securing benefits in return.”
- “Profit-making” and “loss-making companies” for the purposes of political contributions, since “it is more plausible that loss-making companies will contribute to political parties with a quid pro quo and not for the purpose of income tax benefits.”
The present SC ruling quashes the anonymous political donations and the amendments in CA permitting unlimited corporate donations to political parties. Political donations are not unconstitutional, however a company, making such donations, shall ensure the same does not result into emptying the resources of the company while also ensuring transparency in disclosure of such political donations in its financial statements for the right of information of the concerned shareholders as well as larger stakeholder and voter base.
Corporate Governance: Miles Travelled and Miles to go
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Discover a comprehensive guide to Corporate Governance, offering an insightful journey through its evolution and key concepts. This book provides in-depth coverage across various areas, making it an essential read for professionals. Key highlights include:
- Covers the complete ecosystem of corporate governance – board and its committees, independent directors, auditors, proxy advisors and shareholders
- Extensive coverage on significant aspects such as conflicts of interest, information symmetry and corporate transparency
- Futuristic focus: covers use of technology in corporate governance like the use of AI boardroom decisions
- Sustainability and business responsibility covering directors’ liability for climate change, sustainability financing, reporting and CSR.
- Substantial coverage on insider trading and related party transactions with guidance to practical implementation of complex provisions
- Global coverage to understand international best practices with focus on Indian legislation so as to make a wider context for the readers.
- Several chapters are supported by extensive, well-classified FAQs
- Regulatory information updated till 30th June, 2024; Registered readers will be provided updates upto a limited time [check inside the Book for google form link]
AGENDA – Felicitation meet-cum-Panel Discussion on Corporate Governance
Share warrants under cloud – are companies not allowed to issue share warrants?
- Payal Agarwal, Senior Manager | corplaw@vinodkothari.com
Share warrants are one of the widely used means to raise funds, particularly, in case of start-ups. MCA has recently notified the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“Amendment Rules”) vide which Rule 9 has been amended to require mandatory conversion of the existing share warrants issued by public companies under the erstwhile Companies Act, 1956 (“Erstwhile Act”) into dematerialised form of securities.
Following this amendment, a significant question comes up to be addressed is whether public companies will not be allowed to issue share warrants altogether? We attempt to decode the implications of the present amendment in this write up.
Actionables under the present amendment
The newly inserted sub-rule (2) and (3) to Rule 9 of the PAS Rules requires every unlisted company to –
- File the details of existing share warrants with the ROC in form PAS-7 within 3 months from the commencement of the Amendment Rules, i.e., by 27th January 2024,
- Require bearers of the share warrants to surrender the same and issue dematerialised shares in the name of such bearer within 6 months from the commencement of the Amendment Rules, i.e., by 27th April, 2024, and
- Convert the unsurrendered share warrants into demat shares and transfer the same to IEPF
The company shall be required to issue notice for the bearers of share warrants in form PAS-8 on its website as well as two newspapers – in vernacular language, having wide circulation in the district and in English language having wide circulation in the state in which the registered office of the company is situated.
Share warrants covered under the present amendment
In the context of the newly inserted sub-rule (2) of Rule 9, the term share warrants is to be interpreted in a much restricted sense. The provision refers to “share warrants prior to commencement of the Companies Act, 2013 and not converted into shares”, which implies share warrants issued under the Erstwhile Act only. In this regard, one may refer to section 114 of the Erstwhile Act that allowed public companies to issue “bearer warrants” entitling the bearer of such warrants to the shares specified therein. The same was referred to as “share warrants” under the said Act, and the shares contained therein can be transferred through mere delivery of the warrant.
The present amendment requires mandatory surrender of such “share warrants” in the form of “bearer warrants” against issuance of shares in dematerialised form.
Permissibility for issuance of share warrants under the Companies Act, 2013 (“Act”)?
As mentioned above, the “share warrants” referred to under the Amendment Rules are limited to the bearer warrants issued in accordance with the Erstwhile Act, and do not extend to all share warrants which companies issue under the various provisions of law.
In general context, share warrants are actually written options to subscribe to the shares of a company on pre-agreed terms at a future date. Such warrants are fairly common in the corporate world on account of the benefits associated with the same, and the present amendment cannot be said to rule out the possibility of issuance of such share warrants. Share warrants are directly or indirectly recognised under various provisions of law, for instance:
- The definition of “securities” as provided for in section 2(h) of the Securities Contracts (Regulation) Act also includes “rights or interest in securities”. Share warrants are, in fact, a right to acquire securities at a future date, and therefore, well covered under the definition of securities
- The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 contains specific provisions with respect to issuance of share warrants.
- The Foreign Exchange Management (Non Debt Instruments) Rules, 2019 also refers to the term “share warrants” within the overall definition of “equity instruments” and contains specific provisions with respect to the same.
- The Act refers to the conversion of “warrants” as a permissible mode for issuance of shares during the restricted period post buyback u/s 68(8) of the Act. It also contains references to employee “stock options”, which, by nature are equivalent to share warrants.
While the Act does not mention at several places under it about share warrants, however, at few places, like the provisions under section 68 dealing with buy back of securities as well as reference to employee “stock options”, which, by nature are equivalent to share warrants are given the Act.
Therefore, there are no explicit provisions that prohibit the issuance of share warrants by unlisted companies, and the same, being a “security” can very well be issued by a company, whether listed or unlisted, in compliance with the applicable provisions of law to meet the required funding as well as investment objectives.
Concluding remarks
The Amendment Rules aim at the wiping out of the bearer share warrants, since the legal and beneficial ownership of the shares are non-traceable in such a case. However, that does not eliminate the concept of share warrants as a whole, that are issued to an identified set of persons, and follows a due procedure laid down in the law for transfer of such warrants. Although not expressly defined under the Act, the concept of share warrants is legally recognised under various laws and are being widely issued by Indian companies, whether listed or unlisted, including private companies. The current set of amendments will have no impact on the permissibility of issuing share warrants issued under the Act and other laws as mentioned hereinabove.
Delegation of the power to invest – absolute or conditional?
– Nitu Poddar | corplaw@vinodkothari.com
As per section 186(5), any investment has to be approved by the board in its meeting by all the directors present in the meeting. First proviso to section 179(3) allows delegation of power of the board with respect to investing the funds of the company. This power can be delegated to a committee of directors / MD / manager or any principal officer. Are these two provisions contradictory? No, delegation allowed in section 179 is to remove bottlenecks in terms of activities being carried out by the company in its day-to-day operations. There are several investment opportunities which are available only at opportune times. If these opportunities have to wait for the board meeting to happen, the very opportunity may be lost. Also, companies need to ensure that they do not sit with idle funds. For this, they are often required to make investment decisions – investments which are non-strategic, short term and have to be reinvested soon enough.
Read more →G20/OECD’s Corporate Governance Principles, 2023
Ankit Singh Mehar, Executive | corplaw@vinodkothari.com
The G20 leaders in the recent G20 Summit held on 8th -10th September, 2023, endorsed the revised ‘G20/OECD Principles of Corporate Governance’ (‘Revised Principles’). The Revised Principles replace the extant set of principles released in 2015 in light of the evolution in capital markets and global economy, following a review of the erstwhile principles over a period from 2021-2023.
As stated in the Summit Declaration, the Revised Principles have been endorsed by the G20 leaders “with the aim to strengthen policy and regulatory frameworks for corporate governance that support sustainability and access to finance from capital markets, which in turn can contribute to the resilience of the broader economy.”
The Revised Principles, besides making alterations to the existing principles, also introduce two new chapters, viz.,
Chapter III – ‘Institutional investors, stock markets, and other intermediaries’ focussing on engagement of institutional investors with the investee company, essential disclosure requirement and management of conflict of interest pursuant to exercise of their key ownership rights.
Chapter VI – ‘Sustainability and resilience’ focussing on corporate governance policies for managing the risks and opportunities of sustainability and resilience
Below we summarise the key highlights of the Revised Principles.
Read more →