The Securities and Exchange Board of India (SEBI) is examining the issue of promoter holding in Indian companies and reviewing whether there is a need to move to a framework of controlling shareholders, which is the norm in most other countries.
This assumes significance as some of the largest diversified business houses of the country are still family or promoter-driven with the control concentrated in the hands of a few entities.
While speaking at a capital market conference organised by industry body FICCI on Wednesday, SEBI chairman Ajay Tyagi said the market watchdog had issued a consultation paper on this matter and is reviewing the feedback from industry players.
"Concentrated ownership is still predominant in our country. However, over time, with high levels of PE/VC funding, increasing start-up culture, new-age companies coming up, etc., there is an increasing trend of companies with diversified shareholding and in many cases, with professional management and no promoters," said Tyagi.
"SEBI had issued a consultation paper some time back seeking comments on whether there is a need to shift from the promoter regime to a controlling shareholder regime as it exists in many countries and if yes, the manner and timeframe for such a shift. With almost all corporate related laws in India based on the promoter concept, I need not emphasise how important and far-reaching this proposal is. We are analysing the feedback received for taking an appropriate view," added Tyagi.
The debate on the ownership norms especially related to the definition of "control" has been going on for many years in India. Many believe that at times an entity might have only a small stake in the company but still exert a lot of control and hence should be treated accordingly.
ROLE OF NOMINEE DIRECTORS
Touching upon the issue of corporate governance, the SEBI chairman said that apart from the independent directors, the nominee directors of institutional shareholders also play an important role and hence should be more proactive.
"While independent directors have a critical role in protecting the interests of minority shareholders, another set of directors who ought to play a more active role in improving corporate governance standards are representatives of institutional shareholders on the Board, whether as nominee directors or otherwise," said Tyagi.
"I strongly urge such representative directors to act as a bulwark along with the independent directors in support of strong governance in the companies. The need to continuously improve the corporate governance standards and transparency is something which should come from within the company itself, especially from its board of directors," added the former IAS officer.
In the last few years, SEBI has pushed institutional stakeholders, especially mutual funds, to take a more active role in board meetings of companies where they hold a sizeable stake. It is now mandatory for all mutual funds to disclose their voting details on resolutions of companies in which they have a stake.
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GIVE SHAREHOLDERS SPACE IN VIRTUAL MEETS
The market watchdog also highlighted the fact that while virtual meetings have become the norm due to the pandemic, concerns have been raised over the confidentiality of such meetings and, more importantly, whether shareholders are getting an opportunity to voice their views and issues during such virtual meets.
"In these pandemic times, both shareholder and board meetings have moved from physical to virtual mode. This is definitely positive, especially in today's times where having physical meetings are not just difficult but also may not be desirable in certain circumstances. However, the virtual mode has created its own set of concerns," said Tyagi.
"Of particular concern are the issues of confidentiality in board meetings and whether shareholders' voice is being properly heard in shareholder meetings. While SEBI will definitely examine specific cases which are brought to its notice, I would advise companies and their top management to ensure that such concerns are adequately addressed," the SEBI chairman said.
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