Enhancing Transparency and Governance in Related Party Transactions

Aligning RPT Disclosures and Executive Compensation: IiAS Flags Key Gaps in Governance Framework

Introduction

India’s evolving corporate governance landscape is once again in focus, with proxy advisory firm Institutional Investor Advisory Services (IiAS) raising concerns over the inconsistencies in related party transaction (RPT) disclosures and the regulatory blind spots around executive compensation—particularly for promoter groups. In a recent analysis, Hetal Dalal, President and COO of IiAS, underscored the urgent need to tighten disclosure norms and improve shareholder oversight, especially in public sector undertakings (PSUs).

A Call for Consistency in RPT Disclosures

PSUs vs. Private Sector: The Regulatory Divide

While SEBI has introduced enhanced RPT disclosure standards for listed companies, PSUs continue to benefit from several regulatory exemptions—some introduced as recently as 2024. This discrepancy, according to IiAS, creates a governance asymmetry. "From a pure disclosure standpoint, there’s little justification for treating PSUs differently," Dalal observed, noting that such carve-outs may compromise investor confidence and market parity.

Transparency and Trust

Although operational reasons may justify some flexibility for state-run enterprises, IiAS has argued that uniform disclosure standards are essential to preserve market trust, particularly in a landscape where private investors increasingly hold significant stakes in PSUs.

A New Portal to Track Related Party Deals

On February 14, 2025, IiAS, in partnership with proxy advisors InGovern and Stakeholder Empowerment Services (SES), launched a dedicated platform for tracking related party transactions. The portal offers:

• Centralised access to RPT disclosures across listed companies
• Tools to benchmark company-level RPT activity
• Support for audit committees and investors to evaluate governance risks and disclosure practices

This initiative complements SEBI’s own RPT disclosure reforms, including the recently launched regulatory portal that aims to democratise access to governance data for all shareholders.

Executive Compensation: A Grey Zone in the RPT Framework

Governance Gaps in Promoter Pay

IiAS has drawn attention to a significant regulatory omission: executive compensation is currently not classified as a related party transaction, even when paid to promoters or their family members. This exclusion enables promoter-directors to vote on their own remuneration resolutions, often without independent shareholder scrutiny.

According to an IiAS report dated January 15, 2025:

• Compensation to promoter families has grown both in absolute terms and as a multiple of median employee pay.
• Of 893 resolutions on promoter remuneration between January 2023 and September 2024, only 10 were voted down.
• If a majority-of-minority voting requirement had applied, nearly a quarter—216 resolutions—would have failed.

A Call for Reform

IiAS has urged regulators to consider applying the same majority-of-minority voting structure to promoter pay resolutions as is currently mandated for material RPTs. “When promoters vote on their own pay, the approval loses its objectivity,” Dalal said.

What Audit Committees Should Be Asking

Dalal has also urged audit committees to adopt a more proactive, risk-based approach to RPT oversight, rather than relying solely on arm’s-length benchmarks and compliance checklists. Suggested areas of scrutiny include:

• Does the company depend heavily on promoter-controlled vendors or distribution channels?
• Are there viable alternatives that could reduce dependency and improve pricing or governance safeguards?
• Do current structures reflect long-term sustainability and fairness to minority shareholders?

By encouraging boards to look beyond technical compliance and ask strategic questions, IiAS hopes to shift corporate culture toward more meaningful governance.

The Regulatory Backdrop: SEBI’s Increasingly Active Role

SEBI has already introduced a raft of reforms in recent years to strengthen the RPT framework, including:

• Mandatory shareholder approvals for material RPTs
• The launch of a real-time RPT portal
• Standardised disclosures that apply uniformly to all listed companies

While these reforms have improved transparency across much of the private sector, gaps remain—particularly when it comes to PSU reporting standards and executive pay mechanisms that escape RPT classification.

Conclusion

IiAS’s recent analysis brings renewed attention to two of the most critical but under-regulated areas of corporate governance: related party transactions and executive compensation. The call to level the playing field between PSUs and private companies, and to bring promoter remuneration under stricter shareholder oversight, reflects growing demand for accountability and fairness in India’s capital markets.

As regulatory reforms continue to evolve, aligning these grey zones with broader governance norms may prove essential—not just for regulatory compliance, but for restoring long-term investor trust and preserving the integrity of shareholder democracy.