The panel also suggested that at least six directors on the board of a listed company must meet five times a year. It recommended that the country’s top 500 companies must have a cyber security oversight sub-committee and an IT sub-committee, each comprising its board members.
Currently, the rules specify at least 50% board members to be independent if, either the chairman is from the promoter group or he/she has executive role. Other companies are allowed to have at least a third of its directors as independent.
The Kotak panel has suggested the rule of 50% independent directors be applied to all listed entities, irrespective of the role of the chairman or if he/she belongs to the promoter group, J N Gupta, one of the committee members said.
The panel’s suggestion to spilt the post of CMD comes from the fact that such a position often blurs the line between the board and the management.
“A company is structured at three layers: Shareholders, the board and the management. With the chairman and the managing director being the same person, there is a possibility of blurring the line between the board and the management. To avoid such a situation, the panel suggested splitting the two roles,” said Gupta, who is also the head of Stakeholders Empowerment Services, an institutional advisory firm.
On the issue of having at least one woman director on each board, the panel’s aim is to bring in gender diversity.
At present, rules require that there must be at least one woman director on the board, irrespective of her being an independent or an executive director.
Some of the suggestions of the Kotak panel assume significance in the backdrop of alleged corporate governance-related issues, which was witnessed at the Tata Group and Infosys in the past couple of years.
In case there are more than one such director on the board of company, the same rule will be applicable if the aggregate yearly remuneration exceeds 5% of the net profit of the company.