Hot corporate governance topics in India

Hot topics

Do shareholders have an advisory or other vote regarding executive remuneration? How frequently may they vote?

See questions 28 and 29. For public companies, the remuneration payable to managing or full-time directors or managers can be determined by the shareholders for a period of three years at a time.

Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?

Under the Companies Act, each shareholder can nominate him or herself or another person as a director appointee for consideration of the shareholders at a general meeting by providing the company with at least 14 days’ notice and depositing a fee of 100,000 rupees with the company. The rules framed under the Companies Act provide that the company shall inform its shareholders of every nomination notice at least seven days before the general meeting, either individually through email or written notice to the shareholders, along with a notification on the website of the company, or through newspaper advertisements of such nominations, at the company’s expense. Upon a resolution passed by simple majority (unless otherwise provided in the AOA) in the general meeting, the nominee stands elected as a director. The company is required to refund the deposit to the nominating shareholder if the proposed person gets elected as a director, or gets more than 25 per cent of the total votes validly cast on the resolution at the general meeting.

The requirement of deposit of amount is not applicable in cases of appointment of an ID or a director recommended by the NRC, if any, or a director recommended by the Board of the company (if the company is not required to constitute an NRC).

Commonly, significant investors or joint venture partners have the right to nominate Board members via ‘pooling arrangements’ and other provisions inserted to that effect into the AOA.

Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?

Companies typically engage with their shareholders at their AGM. The introduction of electronic voting and postal ballot facilities for a large number of matters requiring shareholder approval have enabled greater participation of small shareholders in decision making, including by eliminating the considerable time and cost expended by shareholders to attend general meetings.

The directors of a company are expected to attend all general meetings of a company, and if any director is unable to attend a general meeting, the chairman of the meeting is required to explain the reason for such absence at the meeting. Specifically, the chairman of the NRC, audit committee and the stakeholders committee, if constituted by a company, are required to attend general meetings of the company, and in their absence, another member of the above committees duly authorised by the relevant chairman must attend the general meeting. This standard has been introduced by the Companies Act and ICSI to ensure that at least one member of each of these committees is present at every general meeting to address shareholders’ queries, if any, concerning their respective committees.

On 7 November 2016 the India-UK Financial Partnership, which was formed in July 2014 to provide policy inputs to both governments in the financial sector, presented a paper titled ‘Responsible Shareholder Engagement - An Indian Stewardship Code’ to Mr Arun Jaitley, the Finance Minister of India. The report states that good corporate governance and effective investor stewardship are essential for corporate success and that institutional investors, in particular, have a fiduciary duty to actively and appropriately represent the interests of their investors, who are typically small investors, to the companies in which they hold investments. Specifically in regard to listed companies, the paper recommends the development of an ‘Indian Stewardship Code’ to be adopted by public and private mutual funds, insurance companies and foreign investors which will introduce a ‘voting plus’ and ‘comply or explain’ framework to create responsible shareholder engagement in India and a constructive and mutually beneficial two-way dialogue between shareholders and the Boards of listed Indian companies.

In March 2017, the Insurance Regulatory and Development Authority pioneered in India a stewardship code applicable for insurers. However, there is no common stewardship code in India yet that would be applicable to all institutional investors.

Are companies required to provide disclosure with respect to corporate social responsibility matters?

Under the Companies Act, the Board’s report should disclose the composition of the CSR committee, the details of the CSR policy developed and implemented by the company on CSR initiatives taken during the year, and the reasons for not spending the amount earmarked for CSR activities in a financial year (in case the company fails to spend such amount). The Board’s report should also include an annual report on CSR containing specified particulars. Companies should also disclose the contents of their CSR policies on their website, if any, in the prescribed manner.

The Listing Regulations require the top 500 listed entities based on market capitalisation (calculated as on 31 March of every financial year) to include in their annual report a business responsibility report describing the initiatives taken by them from an environmental, social and governance perspective, in the format as specified by the Board.

Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?

There is no specific requirement to disclose the pay ratio between the CEO’s annual total compensation and the annual total compensation of other workers. However, the Companies Act read with the relevant rules require every listed company to disclose, inter alia, the following in the Board’s report:

• ratio of the remuneration of each director to the median remuneration of the company’s employees for the financial year;
• percentage increase in remuneration of each director, CFO, CEO, company secretary or manager, if any, in the financial year;
• percentage increase in the median remuneration of employees in the financial year;
• number of permanent employees on the rolls of the company;
• average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification for the same and point out if there are any exceptional circumstances for increase in managerial remuneration; and
• affirmation that the remuneration is as per the remuneration policy of the company.

Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?

There is no prescribed requirement for companies to disclose ‘gender pay gap’ information.