Last week, the Securities and Exchange Board of India (Sebi) came up with a slew of proposals to tighten Clause 49 of the Listing Agreement of stock exchanges. At one level the move is ironical because it comes so soon after Deepak Parekh, chairman of Sebi’s Primary Market Advisory Committee (PMAC), had publicly pointed out that not a single company has been fined for violating Clause 49 in over a year after the compliance deadline expired. He also pointed out that nearly half of all listed companies were in breach of the stringent regulations that are India’s version of the dreaded Sarbannes Oxley legislation in the US.

Sebi has still to respond to Deepak Parekh’s challenge and initiate punitive action. But look closely at the changes proposed by Sebi and they reveal that non-compliance is probably far more than the 50 per cent mentioned by Parekh. In fact, even compliant companies have figured out several ways to beat the listing rules and make them meaningless; these tricks and loopholes may now be plugged.

The change that made it to the headlines is that government-nominated directors on corporate boards would not be treated as independent directors. This was proposed by the Narayana Murthy committee, but had been rejected by the Sebi board. Does it stand a better chance of being accepted after this round of public debate?

The issue applies largely to listed public sector companies, where almost all the directors, directly or indirectly are appointed by the government or after an informal approval by bureaucrats and ministers. This would suggest that the proposed change, even if approved by Sebi’s board, might be largely cosmetic.

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