NEW DELHI The capital markets regulator on Friday unveiled proposals to strengthen corporate governance at Indian companies in a move to match best global practice and win back investor confidence.
The measures include separating the roles of chairman and chief executive to avoid one person having "unfettered powers", the Securities and Exchange Board of India (SEBI) said.
The plan could lead to major changes at many Indian companies, most of which are state and family-owned with one person holding the offices of chairman and managing director, a position equivalent to a chief executive.
Many investors, mostly overseas, have expressed concerns about India's opaque corporate governance practices in the past.
In 2009, the founder and chairman of outsourcing services company Satyam Computer Services shocked investors by admitting inflating the company's revenue, income and cash balances by more than $1 billion.
"The roles and offices of chairman and CEO should be separated, as far as possible, to promote balance of power," the regulator said.
SEBI also proposed that independent directors at listed companies must be elected by minority shareholders, ending their appointment and removal by majority shareholders.
"As such, they occupy their position at the pleasure of the controlling shareholders and may therefore be prone to act in accordance with the will of the major shareholders," SEBI said in its discussion paper.
The regulator also proposed that a company must disclose to shareholders and the market the reasons for an independent director's resignation and called for a mandatory limit on how long independent directors can serve on the board.
"Over a period of time, an independent director may develop a friendly relationship with the company and the board and may develop a casual approach, which may affect his envisaged role," said the SEBI, which will consult on the proposals until January 31.
(Reporting by Anurag Kotoky; Editing by David Cowell)