Corporate governance for listed entities - Are you ready for the … · 2020-02-22 · a. List of...

June 2018

KPMG.com/in

Corporate governance for listed entities - Are you readyfor the change?

An introduction About this publicationTo improve standards of corporate governance of listed entities in India, on 5 October 2017, the Securities and Exchange Board of India (SEBI) released for comments the report of its committee on corporate governance (the Kotak Committee)1.

The recommendations in the report covered several areas, including the composition, role and functioning of the board and its committees, oversight of group entities and related party transactions, promoter related arrangements, enhancing transparency and disclosures, strengthening the financial reporting and audit oversight functions, investor engagement and participation, and governance in public sector enterprises.

On 28 March 2018, SEBI considered the recommendations of the Kotak Committee and the public comments on them. Accordingly, they accepted certain recommendations without modifications, few with modifications and referred certain recommendations to various agencies (i.e. government, other regulators, professional bodies, etc.) since the matters involved those agencies2.

On 9 May 2018, SEBI issued amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) to give effect to many of the approved recommendations3. Certain recommendations required SEBI to issue guidelines in the form of a circular. Accordingly, on 10 May 2018, SEBI issued a circular and provided the required guidance4.

This publication incorporates the new requirements to be complied by the listed entities along with effective dates based on the amendments made to the Listing Regulations.

The publication has been designed in a questionnaire-based format. Listed entities could assess their preparedness towards the change by responding to each stated question.

The questions are structured in a manner that a ‘yes’ response generally indicates compliance, and a ‘no’ would generally indicate non-compliance. If the guidance or nature of a particular requirement does not apply to an entity, an ‘NA’ response should be inserted.

1

1. The committee was formed on 2 June 2017 under the chairmanship of Uday Kotak.

2. SEBI press release no. PR No. 09/2018 dated 28 March 2018 and SEBI memorandum issued in April 2018.

3. SEBI notification no. SEBI/LAD-NRO/GN2018/10 dated 9 May 2018.

4. SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2018/79 dated 10 May 2018.

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

About this publication

2


3

Sr. No. ParticularsRegulation para ref

Compliance[Yes/No/NA]

Change applicable from 9 May 2018

Website

1. Has the listed entity ensured compliance with the following disclosure requirements? 36(4)

a. For disclosures on its website: In a format that allows users to find relevant information easily through a searching tool M5

(Note: The requirement to make disclosures in searchable formats shall not apply in case there is a statutory requirement to make such disclosures in formats which may not be searchable, such as copies of scanned documents.)

b. For disclosures to stock exchange: In XBRL format in accordance with the guidelines specified by the stock exchanges from time to time.

M

Changes applicable from 10 May 2018

Disclosures on board evaluation

2. a. Has the listed entity provided disclosures on board evaluation? SEBI circular6

V7

b. Has it considered following disclosures relating to board evaluation?

i. Observations of board evaluation carried out for the year V

ii. Previous year’s observations and actions taken V

iii. Proposed actions based on current year observations. V

Group governance

3. Where a listed entity has multiple unlisted subsidiaries, has the listed entity considered the following?

a. Monitors their governance through a dedicated group governance unit or Governance Committee which comprises the members of its board of directors

V

b. Established a strong and effective group governance policy. V

(Note: The decision of setting up of such a unit/committee or to have such a policy would lie with the board of directors of the listed entity.)

4. Has the listed entity provided its medium-term and long-term strategy (based on a time frame as determined by its board of directors) within the limits set by its competitive position?

SEBI circular

V

(Note: This disclosure will form part of the management, discussion and analysis in a listed entity’s annual report. Additionally, the listed entity may articulate a clear set of long-term metrics specific to the company’s long term strategy to allow for appropriate measurement of progress.)

Changes applicable from 1 October 2018

Eligibility criteria for independent directors

5. Do the independent directors of the listed entity fulfil the following additional criteria? 16(1)(b)

a. He/she is or was not a member of the promoter group of the listed entity M

5. Mandatory requirement6. SEBI circular no. SEBI/HO/CFD/CMD/CIR/P/2018/79 dated 10 May 20187. Voluntary requirement


4



b. He/she is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director (board inter-lock).

M

Alternate directors for independent directors

6. Has the listed entity ensured that an alternate director has not been appointed for an independent director?

25(1)M

Directors and Officers Insurance (D&O) for independent directors

7. Has the listed entity undertaken a D&O insurance for all its independent directors?

25(10)M

(Note: i. This is applicable to top8 500 listed entities.

ii. The quantum and the risk to be covered under D&O insurance would be as determined by its board of directors.)

Website

8. a. Has the listed entity disclosed credit ratings obtained for all its outstanding instruments on its website?

46(2)(r)M

b. In case of any revision in such credit ratings, has the entity updated them immediately on the website? M

Prior intimation of board meeting to discuss bonus issue

9. Has the listed entity provided prior intimation to stock exchange about the meeting of the board of directors in which the proposal for declaration of bonus securities (communicated to the board of directors of the listed entity as part of the agenda papers) is due to be considered?

29(1)(f)M

Changes applicable from half-year ending 31 March 2019

Related party transactions

10. Has the listed entity submitted disclosures of related party transactions on a consolidated basis within 30 days of publication of its stand-alone and consolidated financial results for the half year in the format prescribed in the relevant AS/Ind AS for annual results, to the stock exchanges?

23(9)M

(Note: i. This is applicable from the half year ending 31 March 2019.

ii. In case of non-compliance, strict penalties may be imposed by SEBI.)

Changes applicable from the year ended 31 March 2019

Secretarial audit

11. a. Has the listed entity and its material unlisted subsidiaries (incorporated in India) ensured that a secretarial audit been undertaken?

24AM

b. If answer to Q 11(a) is yes, does the annual report of the listed entity include a secretarial audit report given by a company secretary in practice (in such form as may be specified)?

M

8. Relevant top entities to be determined on the basis of market capitalisation as at the end of immediate previous financial year.



5



Annual report

12. Has the listed entity disclosed transactions of the listed entity with any person or entity belonging to the promoter/promoter group which hold(s) 10 per cent or more shareholding in the listed entity in the format prescribed in the relevant AS for annual results?

Schedule V – Part A -

2AM

(Note: This disclosure would be given in related party transactions section of the annual report.)

13. Has the listed entity also provided the following disclosures in the management, discussion and analysis section of the annual report?

Schedule V – Part B – 1

a. Details of significant changes (i.e. change of 25 per cent or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefor, including:

M

i. Debtors turnover

ii. Inventory turnover

iii. Interest coverage ratio

iv. Current ratio

v. Debt equity ratio

vi. Operating profit margin (%)

vii. Net profit margin (%)

b. Details of any change in return on net worth as compared to the immediately previous financial year along with a detailed explanation thereof.

M

14. Has the listed entity also provided following disclosures in the corporate governance section of the annual report?

Board of directors

a. Details of names of the listed entities where the person is a director and the category of directorship.

Schedule V – Part C –

2(c)M

b. List of core skills/expertise/competence identified by the board of directors in the context of the business(es) and sector(s) and those actually available with the board.


2(h)M

c. Confirmation that in the opinion of the board, the independent directors fulfil the conditions specified in the Listing Regulations and are independent of the management.


2(i)M

d. Detailed reasons for resignation of an independent director before the expiry of his/her tenure along with a confirmation by such director that there are no other material reasons other than those provided.


2(j)M

General shareholders’ information - credit ratings

a. List of all credit ratings obtained by the listed entity along with any revisions thereto during the relevant financial year, for all debt instruments of such entity or any fixed deposit programme or any scheme or proposal of the listed entity involving mobilisation of funds, whether in India or abroad.


9(q)M


6



Other disclosures

a. Details of utilisation of funds raised through preferential allotment or qualified institutions placement as specified under Regulation 32(7A) of the Listing Regulations.


10(h)M

b. A certificate from a company secretary in practice that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as directors of companies by the SEBI/Ministry of Corporate Affairs (MCA) or any such statutory authority.


10(i)M

c. Details of recommendations mandatorily required by any committee of the board in the relevant financial year that have not been accepted by the board, along with reasons thereof.


10(j)M

(Note: This would apply where recommendation of/submission by the committee is required for the approval of the board of directors and shall not apply where prior approval of the relevant committee is required for undertaking any transaction under the Listing Regulations.)

d. The total fees for all services paid by listed entity and its subsidiaries (i.e. on a consolidated basis) to the statutory auditor and all entities in the network firm/network entity of which the auditor is a member.


10(k)M

15. a. Has the listed entity sent a copy of the annual report to the shareholders along with the notice of the Annual General Meeting (AGM) not later than the day of commencement of dispatch to its shareholders?

34(1)(a)M

b. In case shareholders approve any amendments to any portion of the annual report, has a revised copy (with details of and explanation for the changes so approved) been sent not later than 48 hours after the AGM?

34(1)(b)M

c. While sending the copy of annual report, has the listed entity sent soft copies of full annual report to all those shareholder(s) who have registered their email address(es) even with any depository?

36(1)(a)M

Timeline for AGMs

16. Does the listed entity comply with the following requirements relating to AGMs?

a. To hold AGMs within five months from the date of closing of the financial year

44(5)M

b. One-way live webcast of the proceedings of the AGMs. 44(6)M

(Note: This is applicable to top 100 listed entities from 1 April 2019)

Changes applicable from 1 April 2019

Minimum number of directors on board

17. Are there at least six directors on the board of directors of the listed entity?

17(1)(b)M

(Note: This is applicable to top 1,000 listed entities.)

Gender diversity on the board

18. Does the composition of the board of directors of the listed entity consist of at least one independent woman director?

17(1)(a)M

(Note: This is applicable to top 500 listed entities.)

7



Approval for non-executive directors on attaining a certain age

19. If the listed entity has appointed a person who has attained the age of 75 years as a non-executive director, then has it complied with the two conditions given below?

17(1A)

a. A special resolution has been passed M

b. An explanatory statement has been annexed to the notice for such motion indicating the justification for appointing such a person. M

Quorum for board meetings

20. Has the listed entity ensured that the quorum for every meeting of the board of directors is one-third of its total strength or three directors, whichever is higher including at least one independent director?

17(2A)M

(Note:i. Participation of the directors by video conferencing or by other audio-visual

means would also be counted for the purposes of such quorum.

ii. This is applicable to top 1,000 listed entities.)

Maximum number of directorships

21. Has the listed entity ensured that a person does not hold office of a director (including any alternate directorship) at the same time in more than:

17A

a. Eight listed entities M

b. Out of eight listed entities, a person does not serve as an independent director in more than seven listed entities. M

(Note: i. Any person who is serving as a whole-time director/managing director in any

listed entity would serve as an independent director in not more than three listed entities.

ii. The count of listed entities on which a person is a director/independent director would be only those whose equity shares are listed on a stock exchange.)

Obligations with respect to independent directors

22. Do the independent directors of the listed entity submit a declaration at following occasions? 25(8)

a. The first meeting of the board of directors in which he/she participates as a director M

b. The first meeting of the board of directors in every financial year or M

c. Whenever there is any change in the circumstances which may affect his/her status as an independent director. M

d. Have the board of directors of the listed entity taken on record the above mentioned declaration and confirmation submitted by the independent director(s) after undertaking due assessment of the veracity of the same?

25(9)M

(Note: The declaration would contain the following:

i. He/she meets the criteria of independence as provided in Regulation 16(1)(b) of the Listing Regulations

ii. He/she is not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact his/her ability to discharge his/her duties with an objective independent judgement and without any external influence.)


8



Evaluation of independent directors

23. Whether performance evaluation of independent directors includes the following criteria?

a. Performance of the directors M

b. Fulfillment of the independence criteria as specified in the Listing Regulations M

c. Their independence from the management. M

Disclosures on resignation of independent directors

24. a. Has the listed entity disclosed the detailed reasons for resignation of an independent director before the expiry of his/her tenure within seven days of resignation to the stock exchange?

Schedule III – Part A –

A(7B)M

b. Do the independent directors provide confirmation stating that there are no other material reasons other than those provided by him/her? M

Audit committee

25. Whether review of utilisation of loans and/or advances from/investment by the holding company in the subsidiary exceeding INR100 crore or 10 per cent of the asset size of the subsidiary, whichever is lower, included as a role of an audit committee?

Schedule II - Part C -

A(21)M

(Note: The thresholds would include loans/advances/investments existing as on 1 April 2019.)

Nomination and remuneration committee

26. Does the nomination and remuneration committee also recommends to the board of directors, all remuneration, in whatever form, payable to senior management?

Schedule II – Part D

A (6)M

(Note: Senior management would include all members of management one level below the CEO/MD/whole time director/manager (including CEO/manager, in case CEO/manager is not part of the board) and specifically include the company secretary and the chief financial officer.)

16(1)(d)

27. a. Do the members of the nomination and remuneration committee meet at least once in a year?

19(3A)M

b. Has the listed entity ensured that the quorum of the meeting of nomination and remuneration committee is either two members or one third of the members of the committee, whichever is greater, including at least one independent director in attendance?

19(2A)M

28.

Stakeholders’ relationship committee

Whether the members of the stakeholders’ relationship committee of the listed entity comprise at least three directors with one being an independent director?

20(2A)M

29. Is the chairperson of the stakeholders’ relationship committee present at the AGM to answer queries of the security holders?

20(3)M

30. Does the role of the stakeholder’s relationship committee also include the following?

Schedule II – Part D B(1) – (4)

a. Resolve the grievances of the security holders of the listed entity including issue of new/duplicate certificates, general meetings, etc. M

b. Review of measures taken for effective exercise of voting rights by shareholders M


9



c. Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the registrar and share transfer agent

M

d. Review of the various measures and initiatives taken by the listed entity for reducing the quantum of unclaimed dividends and ensuring timely receipt of dividend warrants/annual reports/statutory notices by the shareholders of the company.

M

(Note: The SRC of every listed entity would specifically look into various aspects of interests of shareholders, debentureholders and other security holders.)

31. Do the members of the stakeholders’ relationship committee meet at least once in a year?

20(3A)M

Risk management committee

32. Has the listed entity constituted a risk management committee? 20(5)M

(Note: This is applicable to top 500 listed entities.)

33. Does the role of the risk management committee specifically cover cyber security?

21(4)M

34. Do the members of the risk management committee meet at least once in a year?

21(3A)M

Obligation on the board of the listed entity with respect to subsidiaries

35. Does the listed entity consider any of its subsidiary to be material? 16(1)(c)M

(Note: Material subsidiary means a subsidiary whose income or net worth exceeds 10 per cent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.)

36. Has the listed entity appointed at least one of its independent directors on the board of directors of unlisted material subsidiary, for both incorporated in India or outside India?

24(1)M

(Note: Material subsidiary means a subsidiary whose income or net worth exceeds 20 per cent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.)

37. Do the board of directors of the listed parent also review significant transactions and arrangements entered into by all unlisted subsidiaries?

Explanation to 24(1)

M

Related party transactions

38. Has the listed entity identified as a related party ‘any person or entity belonging to its promoter or promoter group and holding 20 per cent or more of shareholding in the listed entity’?

2(1)(zb)M

39. While obtaining shareholders’ approval for all material related party transactions, has the listed entity (whether related party to the particular transaction or not) ensured that no related party votes to approve such a resolution?

23(4)M

40. Has the listed entity ensured that all the entities falling under the definition of related parties do not vote to approve the relevant transaction whether the listed entity is a party to the particular transaction or not?

23(7)M


10



41. Has the listed entity considered a transaction involving payments made to a related party with respect to brand usage or royalty as material, if the transaction(s) individually or taken together with previous transactions during a financial year, exceed two per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity?

23(1A)M

42. a. While formulating the materiality policy, has the listed entity included clear threshold limits duly approved by its board of directors?

23(1)M

b. Does the board of directors of the listed entity review its materiality policy at least once every three years and update it accordingly? M

Remuneration to executive directors

43. Has the listed entity obtained approval of shareholders through a special resolution for payment of remuneration to executive directors who are promoters or members of the promoter group, if the payment exceeds the following threshold:

17(6)(d)

a. In case of one executive director: annual remuneration payable to such executive director exceeds INR5 crore or 2.5 per cent of the net profits of the listed entity, whichever is higher

M

b. In case of more than one executive director: aggregate annual remuneration to such directors exceeds 5 per cent of the net profits of the listed entity.

M

(Note:i. The approval of the shareholders would be valid only till expiry of term of

such director.

ii. Net profits would be calculated as per Section 198 of the Companies Act, 2013.)

Remuneration to non-executive directors

44. Has the listed entity obtained approval of shareholders by way of special resolution every year in which the annual remuneration payable to a single non-executive director exceeds 50 per cent of the total annual remuneration payable to all non-executive directors, giving details of remuneration thereof?

17(6)(ca)M

Audit qualifications

45. In case an auditor has expressed a modified opinion(s) in respect of audited financial results and the impact of such qualification is not quantifiable, has the management of the listed entity complied with the following?

Schedule IV – Part A

– BB(i)

a. Make an estimate of the qualification M

b. Review the estimate M

c. Reports the estimate. M

46. a. Has the listed entity taken the exception of not quantifying audit qualification relating to going concern or sub-judice matters?

Schedule IV – Part A – BB(ii)

M

b. If answer to Q 46(a) is yes, then has the management provided reasons for not quantifying those qualifications? M

(Note: The auditor would review such reasons and report accordingly.)


11



Group audits

47. Has the statutory auditor of the listed parent undertaken a limited review of all the entities/companies whose accounts are to be consolidated with it as per Accounting Standard (AS) 21, Consolidated Financial Statements, or Indian Accounting Standard (Ind AS) 110, Consolidated Financial Statements in accordance with guidelines issued by the SEBI on this matter?

33(8)M

Quarterly financial disclosures

48. a. In case the listed entity has subsidiaries, in addition to the stand-alone financial results, does the listed entity also submit quarterly and year-to-date consolidated financial results?

33(3)(b)M

b. In case of quarterly consolidated financial results, has the listed entity ensured that at least 80 per cent of each of the consolidated revenue, assets and profits, respectively, have been subject to audit or in case of unaudited results, subjected to limited review?

33(3)(h)M

c. Has the listed entity also submitted a cash flow statement as part of its stand-alone and consolidated financial results for the half-year?

33(3)(g)M

d. While submitting the last quarter’s results along with the results for the entire financial year, has the listed entity ensured that the last quarter results are either limited reviewed or audited?

33(3)(e)M

e. Has the listed entity disclosed by way of note aggregate effect of material adjustments made in the results of the last quarter pertaining to earlier periods?

33(3)(i)M

Disclosure on reasons of resignation of auditors

49. Has the listed entity disclosed detailed reasons for resignation of an auditor as given by the said auditor to the stock exchange immediately and not later than 24 hours of receipt of such reasons from the auditor?

Schedule III – Part A –

A(7A)M

Disclosure on audit fees and auditor’s credentials

50. Has the listed entity provided following disclosures in the notice of the AGM where the auditor(s) is/are proposed to be appointed/re-appointed?

36(5)

a. Basis of recommendation for appointment including the details in relation to and credentials of the auditor(s) proposed to be appointed M

b. Proposed fees payable to the auditor(s) along with terms of appointment M

c. In case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change.

M

Resolutions to be sent to shareholders with board’s recommendation

51. Does the statement to be annexed to the notice of general meeting (as referred in Section 102(1) of the Companies Act, 2013) for each item of special business to be transacted at a general meeting also contain the recommendations of the board to the shareholders on each of the specific items?

17(11)M

Website

52. Has the listed entity maintained a separate section for investors on its website for all the information mandated under Regulation 46(2) of the Listing Regulations?

46(2)M


12



53. Has the listed entity uploaded separate audited financial statements of each of its subsidiary in respect of a relevant financial year, at least 21 days prior to the date of the AGM which has been called to, inter alia, consider accounts of that financial year the following additional details on its website?

46(2)(r)M

Changes applicable from 1 April 2020

Minimum number of directors on board

54. Are there at least six directors on the board of directors of the listed entity?

17(1)(b)M

(Note: This is applicable to top 2,000 listed entities from 1 April 2020.)

Gender diversity on the board

55. Does the composition of the board of directors of the listed entity consists of at least one independent woman director?

17(1)(a)M

(Note: This is applicable to top 1,000 listed entities from 1 April 2020.)

Separation of the roles of chairperson and Managing Director (MD)/Chief Executive Officer (CEO)

56. a. Does the listed entity have any identifiable promoters as per the shareholding pattern filed with stock exchanges?

17(1B)M

b. If answer to Q 56(a) is yes, does the chairperson of such an entity meet both the given conditions? M

i. He/she is a non-executive director M

ii. He/she is not related to the MD or the CEO as per the definition of the term ‘relative’ under the Companies Act, 2013. M

(Note: This is applicable to top 500 listed entities from 1 April 2020.)

Quorum for board meetings

57. Has the listed entity ensured that the quorum for every meeting of the board of directors is one-third of its total strength or three directors, whichever is higher including at least one independent director?

17(2A)M

(Note:i. Participation of the directors by video conferencing or by other audio-visual

means shall also be counted for the purposes of such quorum.

ii. This is applicable to top 2,000 listed entities from 1 April 2020.)

Maximum number of directorships

58. Has the listed entity ensured that no person holds office of a director (including any alternate directorship) at the same time in more than: 17A

a. Seven listed entities M

b. Out of eight listed entities, a person does not serve as an independent director in more than seven listed entities. M

(Note: i. Any person who is serving as a whole-time director/managing director in any

listed entity serves as an independent director in not more than three listed entities.

ii. The count for the number of listed entities on which a person is a director/independent director shall be only those whose equity shares are listed on a stock exchange.)


13



Disclosure of expertise/skills of directors

59. Has the listed entity disclosed the skills/expertise/competence of the board of directors (in the form of a chart or a matrix) along with the names of directors who have the skills/expertise/competence (as listed out by the board of directors as required in the context of its business(es) and sector(s) for it to function effectively and those actually available with the board)?


2(h)M

(Note: This is applicable for the annual report for financial year ending 31 March 2020.)


14


Follow us on: kpmg.com/in/socialmedia

kpmg.com/in

KPMG in India contacts:

Mritunjay KapurNational Head Markets and Strategy HeadTechnology, Media and Telecom T: +91 124 307 4797E: [email protected]

Sai VenkateshwaranPartner and HeadAccounting Advisory ServicesT: +91 20 3090 2020E: [email protected]

Pankaj AroraPartnerGovernance Risk and Compliance ServicesT: +91 124 336 9462E: [email protected]

Ruchi RastogiPartnerAssuranceT: +91 124 334 5205E: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Printed in India.

Corporate governance for listed entities - Are you ready for the … · 2020-02-22 · a. List of...

Documents

Transcript of Corporate governance for listed entities - Are you ready for the … · 2020-02-22 · a. List of...