Market regulator Securities and Exchange Board of India (SEBI) today proposed wide-ranging overhaul of corporate governance norms for listed companies, through measures like checks against unjustifiable CEO pay, greater powers to minority shareholders, an orderly succession planning and hefty penalties for non-compliance.

Besides, the regulator has also proposed a new concept of ’Corporate Governance Rating’ by independent agencies to monitor the level of compliance by the listed companies and regular inspection by SEBI and stock exchanges.

In a discussion paper for proposed changes in the corporate governance norms for listed firms, the SEBI has also proposed measures for a greater oversight by and on independent directors, as well as greater alignment of CEO salaries with the performance and goals of the company.

The SEBI said “that, on average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect.”

The SEBI has also proposed mandatory disclosure by the listed companies of ratio of remuneration paid to the each of their directors and their median staff salary.

Such a disclosure has already been proposed in the Companies Bill 2012 for all public companies, but the SEBI has proposed such a provision for listed companies in advance, along with a number of other corporate governance measures contained in the proposed Bill that is awaiting final Parliamentary approval.

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

“At the same time, it is necessary to bring back the confidence of the investors back to the capital market, for channelising savings into investment, which is the need of the hour,” the SEBI said.

The regulator also said 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,” the SEBI said, while proposing measures like companies being asked to get corporate governance rating, inspection of compliance by stock exchanges, SEBI or any other agency.

It has also proposed imposing penalties on the company, its directors, compliance officer and key managerial persons for non-compliance “either in spirit or letter”, and sought to convert the provisions of Listing Agreement into regulations for better enforcement.

Comments on the paper have been invited till January 31.

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