Corporate Governance: SEBI Chairman’s Landmark Address at CII Summit

Corporate governance, at its core, is the system by which companies are directed and controlled.

The address has sparked widespread reactions across India’s corporate and financial sectors. Industry leaders have praised SEBI’s balanced approach, with many describing the speech as a blueprint for the future of corporate governance.

MUMBAI (India CSR): In a momentous event that has sent ripples through India’s financial and corporate sectors, Tuhin Kanta Pandey, Chairman of the Securities and Exchange Board of India (SEBI), delivered a powerful and comprehensive address at the 18th CII Corporate Governance Summit held in Mumbai. Speaking to an audience that included Sanjiv Bajaj, Chairman of the CII Corporate Governance Council, Mr. Chandrajit Banerjee, Director General of CII, and a distinguished gathering of corporate leaders, policymakers, and stakeholders, Pandey underscored the pivotal role of corporate governance in fostering a resilient, transparent, and investor-friendly capital market. His speech, laden with insights, regulatory updates, and a forward-looking vision, has been hailed as a defining moment for India’s corporate ecosystem.

A Clarion Call for Robust Corporate Governance

Kicking off his address with a warm greeting, Shri Pandey emphasized that corporate governance is not merely a regulatory requirement but the very “heart of a healthy and resilient capital market.” He defined corporate governance as the system by which companies are directed and controlled, delineating the rights and responsibilities of stakeholders—boards, management, shareholders, and others—while ensuring transparency, accountability, and ethical decision-making.

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“Good corporate governance is the foundation stone of a successful enterprise,” Pandey declared, highlighting its critical role in protecting the interests of shareholders, particularly minority shareholders, and maintaining the integrity of India’s securities markets. With over 13 crore investors now participating in India’s capital markets, a significant rise from 4.9 crore five years ago, and 5.4 crore mutual fund investors (up from 2.2 crore in FY20), the stakes for robust governance have never been higher. The listed universe, comprising over 5,400 companies, further amplifies the need for stringent governance standards to ensure investor confidence and market stability.

The Evolution of Corporate Governance in India

Pandey traced the evolution of corporate governance in India, spotlighting key milestones that have shaped the regulatory landscape over the past 25 years. A landmark moment was the introduction of Clause 49 of the equity listing agreement in 2000, based on the recommendations of the Kumar Mangalam Birla Committee. This framework was further strengthened following the Naryana Murthy Committee’s recommendations, paving the way for enhanced transparency and accountability.

The codification of listing rules under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) marked another leap forward. These regulations blend principles and rules, covering aspects such as shareholder rights, timely information dissemination, equitable treatment, and board responsibilities. Pandey emphasized that SEBI’s ongoing efforts stem from its mandate to protect investors, ensuring that governance frameworks keep pace with the rapid growth of India’s securities markets.

Why Corporate Governance Matters More Than Ever

In today’s interconnected and dynamic global economy, Pandey argued, good governance is no longer a “best practice” but a necessity. He described it as the “bridge between performance and trust,” essential for fostering investor confidence through transparent disclosures, board independence, and effective oversight. Companies with robust governance structures are better equipped to:

• Manage risks and respond to stakeholder expectations.
• Drive informed decision-making and strategic guidance.
• Align management and shareholder interests, promoting long-term value creation.
• Enhance financial resilience and sustainability.

Pandey highlighted the tangible benefits of strong governance, including positive corporate reputation, better credit ratings, easier access to capital, and higher valuations. Conversely, governance failures in large corporates can trigger ripple effects across the market and economy, threatening financial stability. By mandating disclosures, board structures, and oversight mechanisms, SEBI aims to create a self-regulating environment that encourages ethical and responsible corporate behavior.

SEBI’s Robust Framework for Corporate Governance

Delving into SEBI’s regulatory measures, Pandey outlined how the SEBI (LODR) Regulations, 2015, serve as a comprehensive governance framework for listed entities. These regulations combine principles (e.g., shareholder rights, transparency, and board responsibilities) with rules (e.g., board composition, roles, and committee structures). Key features include:

1. Periodic and Event-Based Disclosures

To ensure transparency and information symmetry, SEBI mandates:

• Periodic disclosures, such as quarterly shareholding patterns, compliance reports, financial results, and deviations in fund utilization.
• Event-based disclosures, including material events (disclosed within timelines of 30 minutes, 12 hours, or 24 hours) and events with potential material impacts on performance or operations.

These disclosures bridge the gap between company insiders and outsiders, promoting a level playing field and enabling better investor decision-making.

2. Tackling Information Asymmetry

To address issues like false, inadequate, or delayed disclosures, SEBI has introduced:

• Quantitative thresholds for determining the materiality of events or information, ensuring uniformity and clarity.
• Guidelines on disclosure timelines to facilitate timely and accurate reporting.

3. Strengthening Board Independence

To curb the practice of permanent board seats and ensure accountability, SEBI has mandated:

• Periodic shareholder approval (every 5 years) for special rights granted to shareholders or directors serving on the board.
• At least two-thirds of audit committee members must be independent directors, enhancing their role in protecting minority shareholders.

Balancing Regulation with Ease of Doing Business

Pandey acknowledged the delicate balance between regulation and business facilitation. Over-regulation can stifle growth and innovation, while under-regulation risks eroding stakeholder trust. To strike an optimum balance, SEBI has introduced several ease of doing business initiatives:

• Single filing system: A tech-enabled platform that eliminates the need for listed entities to file the same document across multiple exchanges.
• Optional newspaper advertisements: Listed entities are no longer required to publish detailed financial results in newspapers, reducing compliance costs.
• Extended disclosure timelines:
  • Outcomes of board meetings concluding after trading hours can now be disclosed within 3 hours (up from 30 minutes).
  • Disclosures for litigations or disputes involving claims can be made within 72 hours (up from 24 hours), provided records are maintained in a structured digital database.
• Flexibility in ESG reporting: Companies can choose between assessment or assurance for BRSR Core disclosures, with ESG disclosures for value chains made voluntary from FY 2025–26.

These measures reflect SEBI’s commitment to fostering a high-trust environment while promoting economic growth and investor attractiveness.

The Way Forward: A Collaborative Ecosystem

Looking ahead, Pandey called for a collaborative ecosystem to achieve SEBI’s governance objectives. He outlined three key pillars:

1. Effective Self-Regulation

Pandey urged corporates to move beyond minimum compliance to embrace maximum governance. Boards must ask tough questions, auditors and independent directors must act as gatekeepers of integrity, and management must be constructively challenged to avoid group thinking. He emphasized that governance is a matter of conscience, not just regulation, and lasting change must originate within corporate boardrooms and cultures.

2. Harnessing Technology

Pandey advocated for the adoption of regtech solutions to streamline compliance, reporting, and operational efficiency. SEBI and stock exchanges are leveraging suptech solutions to detect market abuse and non-compliance early. Technological advancements can further reduce blind spots, curb market misconduct, and instill a culture of continuous compliance.

3. Building Trust for the Long Term

“Governance is not about ticking boxes,” Pandey asserted. “It is about building institutions that can be trusted for years and decades.” While this path requires sacrificing short-term gains, it is the only route to sustainable growth and corporate development.

A Call to Action

In his closing remarks, Pandey issued a passionate call to action, urging corporates, directors, professionals, and investors to be active partners in building a stronger governance ecosystem. “SEBI will continue to set a higher bar for governance,” he affirmed, “but true transformation depends on collective commitment and responsibility.”

Industry Reactions and Implications

The address has sparked widespread reactions across India’s corporate and financial sectors. Industry leaders have praised SEBI’s balanced approach, with many describing the speech as a blueprint for the future of corporate governance. Analysts predict that the reinforced governance framework will bolster investor confidence, attract foreign capital, and enhance India’s standing in global markets. However, some corporates have expressed concerns about the compliance burden, particularly for smaller listed entities, underscoring the need for continued dialogue with regulators.

(India CSR)