‘Split chairman, MD roles before Apr 2022’
NEW DELHI: The capital markets regulator on Tuesday asked listed companies to work towards splitting the roles of chairman and managing director before the April 2022 deadline, as the new directive is not aimed at weakening the position of promoters.
Listed entities were initially 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 regulation will now be applicable to the top 500 listed entities by market capitalisation, with effect from April 1, 2022. “At the end of December 2020, only 53% of the top 500 listed entities had complied with this provision. I urge the eligible listed entities to be prepared for this change in advance of the deadline,” Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi) said at a virtual event organised by industry chamber CII on corporate governance.
He, further, said the idea for such a separation is not to weaken the position of promoters, but to improve corporate governance. The objective of such a separation is to provide a better and more balanced governance structure by enabling more effective supervision of the management, Tyagi said.
“Separation of the roles will reduce excessive concentration of authority in a single individual. Having the same person as chairman and MD brings in conflict of interest,” he added.
Currently, many companies have merged the two posts as CMD (chairman-cum-managing director), leading to some overlapping of the board and management, which could lead to conflict of interest and consequently the regulator in May 2018, came out with its norms to split the post.
The norms were part of the series of recommendations given by the Sebi-appointed Kotak committee on corporate governance.
Globally too, Sebi chief said the needle seems to be moving more towards the separation of chairperson and MD/CEO roles.
In the UK and Australia, the debate has tilted in favour of separating the two posts. Germany and Netherlands have a two-tier board structure, separating the roles of board and the management. The OECD, the international standard setter for corporate governance, also recommends that the two posts should be separated as a good governance practice.
He noted that some articles have opined that there is a tendency to portray the promoters in a bad light and that there is too much focus on only one set of stakeholders — minority shareholders.
He clarified Sebi acknowledges the very important role played by the promoters and entrepreneurs in wealth creation. In fact, the regulator has, over the period, taken a number of steps to improve the ease of compliance by promoters.
In addition, Tyagi stressed on the need to have a fine balance between the role and responsibilities of controlling shareholders and minority shareholders, so that the latter do not misuse the power given to them for protection of their rights.
On independent directors, he said it’s the regulator’s endeavour to bring in greater balance, transparency and quality in the selection of independent directors and functioning of boards.
Institutional investors can and should act as a counterforce to any unwanted decision being pushed in the board. AJAY TYAGI CHAIRMAN, SEBI