Companies embrace new norm that splits CMD posts2 min read . Updated: 19 Feb 2019, 11:32 AM IST
- Reliance Industries, HCL Technologies, Wipro and JSW Steel are among the firms that haven't yet split the CMD post
- A third of the firms that have not complied with the rule so far are public sector enterprises or state-run banks
New Delhi: More than two-thirds of India’s top publicly-traded companies have separated the positions of chairman and managing director (CMD), although the deadline to comply with the rules is more than 13 months away.
That leaves just 156 of the BSE 500 companies to still untangle the role of CMD as of 15 February, compared with 291 in July last year, according to Prime Database, a primary market research tracking firm.
The idea behind the separation of the two positions is to bolster corporate governance. The separation of powers, according to some experts, increases the effectiveness of the board’s oversight role.
A third of the companies that have not complied with the rule so far are public sector enterprises or state-run banks. Although companies still have time to meet the April 2020 deadline, most firms, save for some family-run and government-controlled firms, have started the process of splitting the two positions.
India’s most valuable company, Reliance Industries Ltd, the country’s third and fourth largest information technology services firms, HCL Technologies Ltd and Wipro Ltd, respectively, and JSW Steel Ltd are among the companies that need to comply with the new rules.
The four, along with 90 of India’s largest publicly traded companies, have members of the promoter group holding both the chairman and MD titles.
“Promoters still appear to be looking at how else they can retain maximum power over their firms and so a perceived reluctance on their part to split the titles," said the head of a proxy advisory firm, on condition of anonymity.
But most companies have initiated efforts to comply with the rules. One of the most recent examples is Persistent Systems Ltd, a software services company based in Pune. Chairman and MD Anand Deshpande last week decided to relinquish his role as MD. Christopher O’Connor will take over as chief executive on 26 February. “The transition will take at least six months. So we decided to start the process a year in advance," said Deshpande. At Persistent, Deshpande will transfer his CEO responsibilities to O’Connor, who joins the company on 25 February, over the next three quarters.
Persistent and Tata Coffee Ltd are some of the 135 companies that have, over the past seven months, separated the CMD role. This was after the Securities and Exchange Board of India approved many of the recommendations made by a 25-member panel led by Uday Kotak, chief executive of Kotak Mahindra Bank.
One of these recommendations was the contentious issue of a company splitting the role of CMD.
More companies of the remaining 156 in the list could split the CMD roles during the annual general meetings later this year. “I expect that during the July-August period when most companies hold their AGMs (annual general meetings), more companies will put this proposal of splitting the role of chairman and managing director before their shareholders," said Shriram Subramanian, founder and MD of proxy advisory firm InGovern Research.