Market regulator Securities and Exchange Board of India on Saturday threatened to impose stiff penalties on companies failing to comply with corporate governance norms of appointing requisite number of independent directors by the end of this year.
"I expect companies in public sector and private sector to find independent directors by December 31. There could be penalties after that and that could be costly," Sebi chairman M Damodaran told industry captains at an Assocham seminar in New Delhi.
Looking into the difficulties of India Inc and public sector undertakings, Sebi had extended the last date to December 31 from the earlier deadline of April for compliance of having a requisite number of independent directors in company boards, as envisaged in Clause 49 of Listing Agreement.
But Damodaran made it clear that Sebi will ensure that India Inc sticks to the deadline this time.
"Time is ticking and we must get the process started. If that does not happen, there could be penalties that are uncomfortable, that strike at the root of wide acceptance of the company, penalties, which erode investor confidence and at the end of the day, the company might become irrelevant," he said cautioning India Inc of dire consequences.
This would be the price companies would have to pay if they try and score debating points about many issues, including how many independent directors should be there instead of complying with the norms, he said.
Damodaran was not ready to buy the arguments of India Inc that they cannot find about 25,000 independent directors in a country of one billion. He also said the cost of compliance would not impinge on corporates.
"We are looking for 25,000 independent directors. There is no bar on one person being on more than one board. I am not persuaded that companies, which are seriously looking around, may not find the adequate number of independent directors between now and December 31," the Sebi chairman said.
He also said that cost of compliance was not that high as projected by India Inc.
"I urge you (companies) on your own interest to absorb the costs that would not be too high," he warned and asked India Inc not to resort to delaying tactics by thinking that some new legislation might come and they can wait till then.
Admitting that there would be costs associated with adherence to Clause 49, he said it should not be viewed as expenditure but as investment adding value to the company as foreign investors are now looking at expanded opportunities in the country.
"Nothing good comes free of cost and conversely nothing that is free has any great value. Look at this cost as an investment that will add value to the company," he said, asking corporate houses to stick to the December deadline.
"It is our effort to focus on costs. At the end of the day, none of you will pay the costs because of investors will pay the cost," he said.
At a time when the entire world is looking at India as a potential investment destination, he said the country needs to set high standards in corporate governance so as to attract more investment that will sustain high growth.