In a bid to empower independent directors of listed companies, market regulator SEBI has overhauled rules relating to their appointment, removal and remuneration aimed at giving more say to shareholders while reducing the influence of promoters.

“Appointment/re-appointment and removal of Independent Directors (IDs) shall be through a special resolution of shareholders for all listed entities. Shareholder approval for the appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the board, whichever is earlier,” SEBI said after its board meeting on Tuesday.

3-year cooling off period

A cooling-off period of three years has been introduced for Key Managerial Personnel (and their relatives) or employees of promoter group companies, for appointment as an ID. The entire resignation letter of an ID shall be disclosed along with a list of present directorships and membership on board committees

“Going forward, promoters would need public shareholders, including large institutional shareholders, to support such appointments. These changes can substantially impact the appointment of independent directors. Extra onus is also being imposed on the Nomination and Remuneration Committee (NRC) on selection of independent directors,” said Yash Ashar, Partner & Head - Capital Markets, Cyril Amarchand Mangaldas.

The changes are proposed to be in place from January 1, 2022. Interestingly, the SEBI Board has also proposed some radical changes such as allowing independent directors to receive profit-linked commissions and ESOPs.

Makarand Joshi, founding partner, MMJC and Associates LLP, said, “SEBI has given more teeth to independent directors since both NRC and Audit Committee will have two-third IDs in its constitution (instead of simple majority now). Recently at Majestic Auto, independent directors had almost blocked the appointment of additional independent directors, mooted by the promoters. Now, India Inc may see aggressive shareholder activism inside and outside the boardroom.” SEBI also announced a slew of other decisions including permitting resident Indian fund managers to be constituents of foreign portfolio investors. It reduced minimum investment level in listed infrastructure investment trusts (InViTs) and Real Estate Investment Trusts (REITS) to ₹10,000-15,000 from ₹50,000.

Anuj Puri, Chairman, Anarock Property Consultants, said: "The earlier minimum limit was still quite high for many retail investors. Now. more retail investors will be attracted to these instruments.” SEBI has also approved the concept of ‘Accredited Investors’ in the securities market. This will be a class of investors who may be considered to be well informed/advised about investment products.

Skin in the game

SEBI has changed the ‘skin in the game’ norm for asset management companies based on risk of the schemes, instead of the mandatory one per cent of the amount raised. And to improve information flow on insider trading cases, SEBI has increased the reward to informants to ₹10 crore from ₹1 crore.

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