Sebi takes U-turn on splitting CMD roles
1 min read 15 Feb 2022, 04:07 PM ISTSebi had earlier mandated that the two roles be separated from 1 April after a two-year extension to the initial roll-out date. People holding the two posts also could not be related to each other, it had said
PremiumMUMBAI : In an abrupt about-turn, the markets regulator decided to make splitting of the posts of chairperson and managing director (CMD) by listed entities voluntary rather than mandatory.
The board of the Securities and Exchange Board of India (Sebi), at its meeting on Tuesday, revised its earlier stance following the low level of compliance by listed entities.
Sebi had earlier mandated that the two roles be separated from 1 April after a two-year extension to the initial roll-out date. People holding the two posts also could not be related to each other, it had said.
The major promoter-controlled firms that decided to split the roles include Mahindra and Mahindra, Asian Paints, Sun Pharmaceuticals, and UltraTech Cement. On the other hand, companies such as Reliance Industries, Bharti Airtel, Bajaj Finance, Adani Ports, and JSW Steel have not moved in that direction. “In Indian promoter-led companies, the posts of chairman and managing director have been interwoven. This may work well in other jurisdictions and possibly facilitate better corporate governance, but given majority shareholding and control held by promoter families, the split can impact functioning of business and thereby create uncertainty about future value creation for shareholders," said Moin Ladha, partner, Khaitan and Co.
Half of the Nifty 500 companies are yet to comply with this norm.
“There has been barely a 4% incremental improvement in compliance by the top 500 listed firms in the last two years. Hence, expecting the remaining about 46% to comply by the target date would be a tall order," Sebi said.
The regulator proposed the separation to enable a more balanced governance structure through effective supervision of the management.
“The idea behind the separation of the post of chairman and MD was that there are three levels of control in a company, the shareholder, the board, and the management. This is so because the shareholders and the board cannot interfere with the day-to-day operations of the company. If the board leadership and the management leadership are vested in the hands of the same person, there is a risk of overlap and boundaries can get blurred. The move is achievable but not by all companies. Therefore, Sebi had to make it voluntary," said J.N. Gupta, managing director of Stakeholders Empowerment Services.
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