Tuesday, January 18, 2022
BusinessSplit roles of chairman, MD before April 2022: Sebi chief

Split roles of chairman, MD before April 2022: Sebi chief

Published: 6th Apr 2021 8:30 pm

New Delhi: Capital markets regulator Sebi 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.

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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 per cent 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,” Sebi chairman Ajay Tyagi 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.

On independent directors, Sebi chief said it’s the regulator’s endeavour to bring in greater balance, transparency and quality in the selection of independent directors and functioning of corporate boards. The market regulator, which recently came out with a consultation paper on independent directors, said the paper tries to “strike a balance between the majority shareholders’ right to the final decision and the minority shareholders’ ability to influence the same”.

With regard to disclosure by listed entities, Tyagi said companies’ boards should ensure that adequate disclosures are provided timely to stakeholders and there is no asymmetry of information. Such disclosures should include the impact of Covid-19 on business, performance and financials, he added.

Tyagi said that listed corporates, which raise funds from the public, having a credible and robust corporate governance framework are “sacrosanct to ensure transparency, remove asymmetry of information and enhance investors’ trust”. On gender diversity on the corporate boards, Tyagi said the regulatory push from the Ministry of Corporate Affairs (MCA) and Sebi has definitely improved women representation on corporate Boards in India.

From around 5-6 per cent women on boards in 2014, the number increased to 12 per cent within just a year in 2015 for top 500 companies. The number has been steadily increasing year-on-year and stands at around 17 per cent for top 500 companies at present. At an overall level, the figure stands at around 19 per cent. In the OECD and developed countries, the figure is more than 25 per cent.

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