Last week the National Stock Exchange (NSE) launched NSE Prime, a category of companies that agree to meet higher standards of corporate governance set for Prime and will voluntarily become part of it. Vikram Limaye, MD and CEO, NSE, told Sandeep Singh that while Prime will provide investors with a universe of companies that is identified with higher governance standards, the companies will benefit from brand reputation and potentially a premium on valuation. Edited excerpts:
What is the reason behind creating NSE Prime?
We are creating a category of companies that we are calling NSE Prime. They would voluntarily sign up for governance standards set for the Prime category, which goes beyond what is required by Sebi’s Listing Obligations and Disclosure Requirements Regulations, 2021.
The companies will have to meet these standards to get admitted on this list and then comply on an ongoing basis. If someone does not meet the norm for a continued period of time, they will have to exit the Prime category. From a reputation perspective, that won’t be good as they will need to disclose why they had to exit Prime.
As it is voluntary, it sends the right message that these companies are ready to raise the bar on holding themselves accountable.
What are the criteria that these companies will have to meet?
The minimum public shareholding should be 40 per cent as against LODR requirement of 25 per cent. It is also mandatory to segregate the position of chairman and CEO.
Even on the committee composition front, there are certain changes. Companies will have to have an independent director as the chairperson of risk management committee, stakeholder relationship committee, nomination remuneration committee and audit committee. Also, three-fourths of the members of audit committee will need to be independent.
Besides, a director on the board of a Prime category company shall not serve on the board of more than five public limited companies.
How do you think these will help?
In our country, there are many promoter-run companies and if the promoter owns 75 per cent, what ends up happening is that the decision making and how resolutions get passed is, also to a large extent, promoter controlled, as you need 76 per cent for a special resolution. However, if 40 per cent shareholding is non-promoter holding, then the promoter has to get the support of other shareholders too. We are trying to bring in more and more independence in the composition of committees as well. So, they will help in better governance and better protection of shareholder interest.
How many companies currently meet the criteria you have specified?
The reality is that each company will have to do some rejigging of the committees to qualify. However, if we take the 3-4 more difficult criteria such as minimum public sharehlding, segregation of chairman and CEO, then there are a little over 200 companies that would qualify. These companies cut across Nifty 50, 50-100, 100-200 and beyond 200. So, we have a good mix of companies across market capitalisations.
Our hope is that if we get at least some core group of companies in it, it will have an impact on others wanting to come in.
Do you plan to come with an index of these companies?
We are giving companies six months to to sign up. Depending upon how many sign up and are part of it, we will subsequently come out with an index.
How will it benefit the investor and companies?
Atleast you know that the companies in the category are complying with the higher governance standards norms laid down for Prime.
From an investor perspective, governance has been one of the big concerns and over time several high profile governance related issues have cropped up both in the financial services and non-financial space. While ESG is a broader framework that people are increasingly focussed on, this will shine light on ‘G’ and ‘G’ has been a concern for a long time in India. It will provide investors with a universe of companies that is identified with higher governance standards.
The company would get brand reputation and also potentially a premium on valuation and better quality investors who would want to invest in such companies.