In a major overhaul of corporate governance norms, SEBI will soon put in place stringent checks against unjustifiable CEO salaries at listed companies and ask them to adopt a whistle-blower policy to protect the employees exposing any wrongdoings by the top management.

The capital market regulator would soon make necessary changes in its framework for the Listing Agreement and other regulations that every company needs to follow with regard to their corporate governance practices after becoming a publicly listed entity, a senior official said.

SEBI had sought comments from the general public and other stakeholders earlier this year for a major overhaul of corporate governance norms. Besides, the new Companies Act has also proposed various new measures in this regard.

The necessary changes are being finalised after taking into account the public suggestions, expert opinion and the Companies Act, 2013 provisions, the official added.

The other proposed measures include greater powers to minority shareholders, an orderly succession planning and hefty penalties for non-compliance to model corporate governance practices and related norms.

With regard to executive pay, SEBI will ask the companies to provide a ratio of top management remuneration and the median staff salary. Besides, the companies would have to explain to their shareholders the relationship between their top management salaries and the performance of the company, as also the rationale behind the salaries and pay hikes given to the top executives.

There have been many instances of CEOs and other top managers getting hefty salaries, despite inadequate financial and business gains for the companies. This problem has been found to be much more acute at companies having top executives from their promoter families and the new rules could be stricter for them.

The regulator also plans to usher in new concept of 'Corporate Governance Rating' by independent agencies to monitor the level of compliance by the listed companies and regular inspection by the SEBI and the stock exchanges.

There is also a proposal to put in place a mechanism for greater oversight by and on independent directors, while the minority shareholders would get greater powers in cases like merger and acquisitions, business dealings with entities linked to promoters and top management, changes in the article of association of a company, among other important matters.

With regard to CEO salaries, SEBI wants the companies to be more responsible towards the interest of shareholders, although it does not intend to put any pay caps. Therefore, the regulator is instead focussing on improving the disclosure levels, so that the investors can take more informed decisions.

For strengthening a vigil mechanism among employees against any wrongdoings by promoters and top executives, SEBI wants the companies to set up a board committee for framing and overseeing their whistle-blower policies.

SEBI is seeking to adopt better global practices through these proposals without increasing the cost of compliances by a huge margin.

The regulator is of the view that it has become necessary to bring back the confidence of the investors into the capital market, so that household savings can be channelised into financial investments and a stronger corporate governance regime is being seen as a key force for boosting the investor sentiments.

The current regulations provide for actions like delisting or suspension of a company's shares, adjudication for levy of monetary penalty, prosecution and debarring of promoters and directors from the markets in case of non-compliance.

However, delisting or suspension is generally not considered an investor friendly action and therefore, cannot be resorted to as a matter of routine and can be used only in cases of extreme/repetitive non-compliance.

Prosecution, on the other hand, is a costly and time-consuming process. Therefore, SEBI is mulling measures like companies being asked to get Corporate Governance rating, inspection of compliance by stock exchanges, SEBI or any other agency.

SEBI is also looking at imposing penalties on the companies, their directors, compliance officer and key managerial persons for non-compliance, either in spirit or letter, and might also convert the provisions of Listing Agreement into regulations for better enforcement. 
PTI