Enhancing Transparency in Related Party Transactions: Insights from IiAS

Transparency in Related Party Transactions: Why Executive Compensation Deserves a Harder Look

Executive Pay Under the Governance Microscope

In a sharply worded critique of current corporate practices, Hetal Dalal, President and COO of Institutional Investor Advisory Services (IiAS), has called for a fundamental shift in how India views executive compensation. At the heart of her concern: the absence of executive pay from the regulatory framework that governs Related Party Transactions (RPTs).

This exclusion, Dalal argues, creates a serious blind spot in India’s corporate governance regime—one that allows promoters and senior executives to determine their own pay packages without meaningful shareholder oversight.

Why Bring Executive Compensation Under the RPT Lens?

Level Playing Field: All significant financial dealings with related parties—including remuneration—should follow a common set of disclosure and approval norms.
Mitigating Conflicts: In many listed entities, especially promoter-led firms, top executives are also controlling shareholders. Their ability to influence pay decisions raises obvious governance concerns.
Global Best Practices: Mature markets typically require independent committee review and majority-of-minority shareholder approval for executive compensation—especially when conflicts of interest exist.

Dalal has called for India to adopt a similar model, recommending that promoter remuneration be subjected to a shareholder vote by disinterested investors. An IiAS report from January 2025 underscores the gap: of 893 promoter pay resolutions between January 2023 and September 2024, only 10 were rejected. Under a majority-of-minority framework, nearly a quarter (216 resolutions) would have failed.

Audit Committees: Time to Go Beyond Compliance

Dalal’s recommendations also extend to the role of Audit Committees. Too often, she says, RPT reviews are treated as a compliance exercise focused narrowly on whether the transaction meets the arm’s length standard.

Instead, she urges boards to adopt a more strategic and risk-oriented approach by asking deeper questions:

Risk Exposure: Does the transaction increase operational, financial, or reputational risk?
Necessity vs. Convenience: Is the company overly dependent on promoter-controlled supply chains or distributors?
Long-Term Implications: Does the arrangement serve the company’s strategic interest, or merely maintain legacy structures?

By moving from checklists to strategic oversight, Audit Committees can play a more meaningful role in shaping governance outcomes.

Disclosure Disparities: PSUs vs. Private Sector Companies

A key concern raised by IiAS is the uneven standard of RPT disclosures between public and private sector companies.

Regulatory Exemptions: Public sector undertakings (PSUs) continue to benefit from carve-outs in disclosure rules, including those introduced as recently as 2024.
Transparency Gap: This has created a dual standard—one for PSUs, another for private firms—hindering comparability and eroding market confidence.
Need for Reform: Dalal argues that while operational constraints may justify limited flexibility, from a governance standpoint, alignment is necessary to ensure credibility and investor trust across the board.

The New RPT Portal: A Step Toward Market Empowerment

On February 14, a new RPT tracking portal—jointly launched by IiAS, InGovern Research Services, and Stakeholder Empowerment Services (SES)—added a layer of transparency long missing from India’s governance architecture.

Portal Features:

Centralized Data: A single platform for accessing RPT disclosures across companies.
Benchmarking Tools: Enables comparisons across sectors and companies to identify governance outliers.
Stakeholder Empowerment: Equips investors, audit committees, and even retail shareholders with tools to better evaluate governance risks.

By making disclosures more accessible and usable, the portal transforms RPT information from a regulatory formality into a decision-making asset.

SEBI’s Role in Shaping the Governance Landscape

Dalal acknowledged SEBI’s sustained efforts to enhance RPT oversight. From mandating public shareholder approval for material transactions to rolling out standardized disclosure formats, the regulator has consistently pushed the envelope.

Regulatory Vigilance: SEBI’s emphasis on RPT scrutiny has raised the bar for corporate governance in India.
Enabler of Reform: Its backing has lent credibility and urgency to initiatives like the RPT portal and related policy reforms.

As expectations rise, companies—both private and public sector—are being nudged toward a more transparent and accountable model of governance.

Conclusion

India’s corporate governance architecture is evolving—and related party transactions are increasingly central to that conversation. From executive compensation oversight to disclosure parity between PSUs and private companies, the pressure for reform is building.

With tools like the new RPT portal and advocacy from bodies like IiAS, the ecosystem is better equipped than ever to demand meaningful transparency. The challenge now lies in turning these mechanisms into a consistent culture of governance—where shareholder trust is earned not just by profits, but by how those profits are governed.