Securities and Exchange Board of India (SEBI), a Market Regulator on February 15 mandated the separation of the role of Chairperson and MD or CEO of listed companies. The decision was taken after considering the unsatisfactory level of compliance achieved so far.
In June 2017, the SEBI had set up a Corporate Governance Committee — under the Chairmanship of Uday Kotak — which had made recommendations related to the separation of the role of Chairperson and MD or CEO of listed companies. The main reason for the recommendation was that many companies have CMD (Chairman-cum-Managing Director), leading to some overlapping of the Board and Management, which could lead to conflict of interest separation of powers of the Chairperson and MD or CEOs may provide a better and more balanced governance structure by enabling more effective and objective supervision of the management and, consequently, the Market Regulator, in May 2018, came out with its norms to split the post. So, SEBI ordered it to be implemented from April 1, 2020, then it was extended further by two years in January 2020. The board had cited then that “firms may need more time to prepare themselves for the transition and various other difficulties highlighted by the industry representatives”.
With respect to this Corporate Governance reform, various representations received, constraints posed by the prevailing pandemic situation (SEBI said it received representations from industry bodies and Corporates expressing various compelling reasons, difficulties and challenges for not being able to comply with this Regulatory mandate and with a view to enabling the companies to plan for a smoother transition, as compliance level has reached 54 percent as on December 31, 2021 and at this juncture, this provision may not be retained as a mandatory requirement, and instead be made applicable to the listed entities on a ‘voluntary basis’.
According to the SEBI order, the provision for mandating separation of the roles mentioned will be applicable from April 1, 2022 for top 500 firms. The top listed 500 Entities will have to ensure that the Chairperson of the Board will be a Non-Executive Director and will not be RELATED to the Managing Director (MD) or the Chief Executive Officer (CEO) as per the definition of the term “relative” defined under the Companies Act, 2013.