SEBI makes provision of splitting chairman and MD roles voluntary

PTI

New Delhi, February 15

In a significant move, markets watchdog SEBI on Tuesday decided to implement the requirement to separate the positions of Chairperson and Managing Director at listed companies on a voluntary basis and not make it mandatory for now. The development comes against the backdrop of Finance Minister Nirmala Sitharaman recently saying the regulator should hear if Indian companies have a view on the matter even as she made it clear that she was not “giving a diktat”.

Breather for India Inc

• The top 500 listed entities were required to split the roles of Chairperson and MD/CEO before the April 2022 deadline
• Initially, the listed entities were required to separate the roles of Chairperson and MD/CEO from April 1, 2020 onwards
• However, based on industry representations, an additional time period of two years was given for compliance

The top 500 listed entities were required to split the roles of Chairperson and Managing Director/Chief Executive Officer before the April 2022 deadline.

SEBI cited “rather unsatisfactory level of compliance achieved so far” as among the reasons for the latest decision, which came after its Board meeting on Tuesday.

Initially, the listed entities were required to separate the roles of Chairperson and MD/CEO from April 1, 2020 onwards. However, based on industry representations, an additional time period of two years was given for compliance.

“Considering rather unsatisfactory level of compliance achieved so far, with respect to this corporate governance reform, various representations received, constraints posed by the prevailing pandemic situation and with a view to enabling the companies to plan for a smoother transition, as a way forward, SEBI Board at this juncture, decided that this provision may not be retained as a mandatory requirement and instead be made applicable to the listed entities on a voluntary basis,” it added. As the revised deadline for compliance is less than two months away, SEBI said that on a review it is seen that the compliance level, which stood at 50.4% among the top 500 listed companies as on September 2019 has progressed to only 54% as on December 31, 2021.

Thus, there has been barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years. Hence, expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date would be a tall order, it added.

SEBI also noted that it continues to receive representations from industry bodies and corporates expressing various compelling reasons, difficulties and challenges for not being able to comply with this regulatory mandate.

Many companies have the post of CMD, leading to some overlapping of the Board and management, which could lead to conflict of interest. Against this backdrop, SEBI, in May 2018, came out with the norms to split the post. —

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