SEBI’s Latest Format for Compliance Report on Corporate Governance

SEBI recently introduced a new format for compliance report on corporate governance, which has to be submitted by the listed companies to the designated stock exchanges. The circular by SEBI states the new format for disclosures to be made by such listed companies on

• quarterly basis,
• annual basis at the end of the financial year (for the complete financial year) and
• within six months from the end of the financial year that can be submitted along with the report of the second quarter.

For your Knowledge: Listed Companies are the companies whose shares are traded or listed on an official stock exchange. It must comply with the listing requirements of that exchange.

Before moving ahead, let’s get familiar with the corporate governance and the amount of importance it holds in India

Corporate Governance in Indian Scenario

Corporate governance is a procedure that is in interest for companies based on certain structures and principles through which a company or a corporation is governed. It makes sure that the corporate works in a way that it is ultimately able to achieve the preferred goals. Further, it makes the firms accountable towards each stakeholder that may include directors, shareholders, employees, consumers, etc.

In simple words, corporate governance generally refers to practices by which an organization is controlled, directed, and administered. The primary purpose of Corporate Governance is to make such conditions where a company’s directors and the managers should have to do something on behalf of the interest of the company and its various stakeholders.

Also, Read: SEBI Guidelines for Making Public Offer.

Importance of Corporate Governance

Corporate governance has an important role to play in every company or organization. The significance of Corporate Governance in a company/corporation can be explained as under:

• It ensures that there is a level of confidence among the corporation and its stakeholders which, ultimately results in the betterment of the organization.
• For good corporate governance, the corporation should have an active group of independent directors employed in the company, which, as a result, makes a certain amount of faith and confidence in the market.
• Foreign institutional stakeholders consider corporate governance as a great tool before investing in any of the corporations.
• Companies having good corporate governance are totally away from all kind of scams and any kind of bad exposure.
• Corporate Governance is of the most important criteria in foreign investors list.
• Good corporate governance sets a positive control on the market share price of a company.
• If the company from the past is maintaining a clean record and reputation on the corporate governance desk, then it is much easy for the corporations to fund capital at very reasonable costs.

Corporate Governance Framework in India

The regulatory Frameworks on Corporate Governance which govern the Indian Corporations are:

• The Companies Act of 2013.
• Guidelines of Securities and Exchange Board of India (SEBI).
• Standard Listing Agreement of Stock Exchanges.
• Companies (Indian Accounting Standards) Rules of 2018.
• Secretarial Standards as per ICSI.
• Accounting Standards by the Institute of Chartered Accountants of India (ICAI).
• Companies (Indian Accounting Standards) Rules of 2015.
• Companies (Indian Accounting Standards) (Amendment) Rules of 2016 and Companies (Accounting Standards) (Amendment) Rules of 2016.

Also, Read: How Corporate Governance in India affects Shareholders.

Background of Compliance Report on Corporate Governance

In September 2015, SEBI had asked listed companies to submit a compliance report on corporate governance in a prescribed format with disclosures relating to the composition of the board of directors as well as the committees and their respective meetings, among others. However, the required changes were made in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 to implement the recommendations of the committee on corporate governance.

The Effective Date of the Circular

SEBI has stated that the circular shall come into force from the quarter ended September 30, 2019

New Format for Compliance Report and various disclosures

As per the recently introduced new format:

• For the quarterly report being submitted within 15 days from close of each quarter, information connected with the total number of independent directorships as well as the chairperson of the corporation shall have to be disclosed along with the disclosures regarding other members of the board of directors.
• Secondly, the dates of appointment as well as the cessation of various committees, particulars of the number of independent directors and directors present at the meeting of the board of directors and meeting of committees are required to be given.

In the report which is required to be submitted at the end of 6 months after the end of the financial year, the status of the attendance of the chairperson of the stakeholder relationship committee at the annual general meeting requires to be stated apart from the existing disclosure requirements. The annual compliance report on corporate governance is correlated towards disclosure in terms of listing regulations.