Anand Mahindra’s decision to be non-executive chairman of Mahindra and Mahindra, effective 1 April 2020, is also a culmination of the Securities and Exchange Board of India (Sebi) regulations, which mandate that the chairperson of the top 500 companies need to be non-executive.
To comply with Sebi norms, such changes are imminent in over 214 companies, including banks, public sector enterprises and large corporates, including Reliance Industries Ltd (RIL), Bharti Airtel Ltd, Wipro Ltd, Bajaj Auto Ltd and Adani Ports Ltd.
The likes of Mukesh Ambani of RIL, Sunil Bharti Mittal of Bharti Airtel, Sanjiv Mehta of Hindustan Unilever and Sanjiv Puri of ITC will have to either become a non-executive chairperson, or take the executive role of managing director and chief executive officer.
According to data compiled by nseinfobase.com (run by Prime Database) of the top 500 companies, 162 have the same person as the chairperson, MD and CEO. In another 52 companies, the chairperson and MD/CEO are related.
Sebi norms under the Listing Obligation and Disclosure Requirement (LODR) also mandate that chairperson cannot be related to the MD or CEO. Sebi relies on the definition of a relative as per the Companies Act, 2013.
“Promoter assuming a non-executive chairperson role is and would be rare. In my view, in most cases, you would find the promoter shall continue with the role of MD/CEO while appointing an existing independent director as the non-executive chairperson. There is still a long way to go. As with other regulations, especially relating to the composition of board, the true test will lie in its implementation -- would there be simple checkbox compliance as we have seen in the past or would the implementation be in spirit as well," said Pranav Haldea, managing director, Prime Database, a primary market tracker.
Most of India Inc. is currently consulting lawyers and family office specialists on restructuring their management and board chairmanship.
“Corporates do not want a situation where they are saddled with someone, either at the board level or management level, who does not understand the thinking of promoters. Many Indian companies for years have been promoter-driven with control over management and board. So, the restriction that MD/CEO and chairman cannot be related is another big concern. The succession planning is acutely being relooked at," said a senior lawyer, who is consulting with some of the Nifty 50 companies on navigating the new Sebi requirements.
But, there are also some corporates who are resisting the change and urging Sebi to revisit the norms. So far, Sebi has refused to consider representations from India Inc. on this issue.
According to a joint report published by International Finance Corp. (IFC), the BSE and Institutional Investor Advisory Services India (IiAS) on corporate governance practice in Indian boardrooms, there is a pushback on Sebi regulations seeking separation of chairperson and CEO roles.
“We find that 57 companies in the BSE 100 and 23 of the 50 IPO companies have separated the roles of the chairperson and CEO, with the chairperson being non-executive. However, some companies have a chairperson and CEO from the same promoter group," said the report.