The Role of SEBI in Corporate Governance in India

The Role of SEBI in Corporate Governance in India

Introduction

Corporate governance refers to the framework of rules, practices, and processes by which companies are directed and controlled. Good corporate governance ensures transparency, accountability, ethical decision-making, and the protection of stakeholders' interests, especially shareholders.

In India, the Securities and Exchange Board of India (SEBI) plays a pivotal role in enforcing and improving corporate governance norms. As the capital market regulator, SEBI develops policies and monitors compliance among listed entities, thereby ensuring a trustworthy corporate environment.

SEBI: An Overview

SEBI was established in 1992 under the SEBI Act, 1992, as a statutory body to regulate securities markets. One of its key objectives is to protect the interests of investors and develop a transparent, efficient, and fair market. Over the years, SEBI has introduced comprehensive guidelines and regulatory measures to improve corporate governance among publicly listed companies.

1. Legal Framework by SEBI

SEBI regulates corporate governance primarily through the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). These regulations set standards for:

• Board composition
• Disclosure of financial and non-financial information
• Audit mechanisms
• Shareholder rights
• Related party transactions

Compliance with LODR is mandatory for all listed companies in India, making it the core document for corporate governance enforcement.

2. Board Composition and Independence

SEBI mandates the presence of independent directors on the boards of listed companies to ensure objectivity in decision-making:

• At least one-third of the board must be independent if the Chairperson is non-executive.
• If the Chairperson is executive, at least half the board must be independent.

SEBI also encourages the separation of roles between the Chairperson and CEO to avoid conflict of interest. This structure enhances accountability and reduces managerial dominance over boards.

3. Committees for Oversight

SEBI has made it compulsory for companies to form independent board committees to oversee critical functions:

• Audit Committee: Composed mainly of independent directors, it monitors financial reporting, audits, and risk management.
• Nomination and Remuneration Committee: Recommends board appointments and director compensation.
• Stakeholders’ Relationship Committee: Looks into grievances of shareholders, investors, and other stakeholders.

These committees ensure checks and balances in corporate governance.

4. Disclosure and Transparency

One of SEBI’s primary contributions is enhancing disclosure norms:

• Quarterly and annual financial reports
• Shareholding patterns
• Voting results of general meetings
• CEO and CFO certification of financial statements

Such disclosures ensure that shareholders are well-informed and that companies remain accountable.

SEBI also introduced the Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed entities, which includes disclosures on environmental, social, and governance (ESG) parameters.

5. Shareholder Protection

SEBI plays an active role in safeguarding the rights of minority shareholders:

• Ensuring e-voting in AGMs for broader participation
• Making postal ballots mandatory for certain decisions
• Regulating related party transactions to prevent unfair advantages to promoters or insiders
• Making takeover codes and delisting rules more transparent

These measures enhance investor confidence and improve India’s image as an attractive investment destination.

6. Whistleblower Mechanism and Vigilance

SEBI encourages companies to establish a vigil mechanism or whistleblower policy, where employees and stakeholders can report unethical behavior or fraud anonymously and without fear of retaliation.

This is vital for improving internal governance and accountability at all levels.

7. Implementation of Kotak Committee Recommendations

In 2017, SEBI set up a committee under Uday Kotak to strengthen corporate governance. Many of its recommendations were accepted and implemented:

• Enhanced role and independence of directors
• Improved disclosure of board evaluation
• Greater oversight by audit committees
• Mandatory disclosure of resignation reasons by auditors and directors

These reforms significantly improved governance standards in India’s corporate sector.

Challenges and Concerns

Despite SEBI’s strong regulatory framework, challenges remain:

• Implementation Gaps: Some companies comply in letter but not in spirit.
• Boardroom Politics: Independent directors may lack true independence due to promoter influence.
• Delayed Enforcement: Investigations and penalties by SEBI can be slow, affecting deterrence.

Thus, while SEBI has empowered corporate governance, further improvements in monitoring and enforcement are needed.

SEBI has transformed corporate governance in India through comprehensive reforms, strict regulations, and proactive supervision. By ensuring board independence, enhancing disclosures, protecting shareholder rights, and promoting transparency, SEBI has strengthened investor trust and improved the credibility of Indian capital markets.

However, continued efforts are needed to ensure that companies internalize governance values beyond mere regulatory compliance. SEBI’s role will remain crucial in India’s journey toward sustainable, ethical, and globally competitive corporate practices.