Jan 14, 2020

Sebi gives India Inc. breather! Companies get two more years to split CMD post

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The Securities and Exchange Board of India (Sebi) on Monday extended the deadline by two years for the implementation of its directive to split the post of chairman and managing director (MD) or CEO for the top 500 listed entities by market capitalisation. Firms now have time till April 2022 to comply with the directive.

The markets regulator had earlier directed the top 500 listed entities to ensure that the chairperson of the board should be a non-executive director and not be related to the managing director or the chief executive officer of the firm — a directive that was to be implemented by April 2020. The earlier directive to implement the split in the roles was done following recommendations by the Sebi-appointed Kotak committee on corporate governance.

Experts believe that the deferment announced on Monday was a bit surprising considering the regulator’s strong stand on the issue back in 2018. As Rishabh Shroff, partner at Cyril Amarchand Mangaldas, said the Kotak committee recommendations made a compelling case for the move. “Companies are still struggling to break the tight multi-generational link between the post of chairman and MD being the same promoter patriarch. If the same individual as chairman & MD was creating shareholder value, why should a company change it? But the law is clear on this now — it’s just been deferred. So, promoters have two years to see how to make this transition,” he said.

The Federation of Indian Chambers of Commerce and Industry (Ficci) welcomed the Sebi’s decision. Sangita Reddy, president, Ficci, said, “This was part of multiple representations made by Ficci and we appreciate that Sebi has extended the deadline as managerial continuity, unified vision and speed of execution are crucial to business success and are facilitated in family businesses.”

The data from Prime Database showed that at big private companies like Reliance Industries, Hindustan Unilever and ITC, the chairman also holds the position of the MD. Even many public sector undertaking companies like Coal India, Indian Oil Corporation and NTPC are yet to split the post of chairman and MD.

Senior officials in the industry also indicated there was a strong pressure from the corporate sector to postpone the deadline. Pavan Kumar Vijay, founder at Corporate Professional Group, thinks the directive was deferred because apart from the government companies, even many private firms like RIL still have the CMD post. “There was a strong pressure from the corporate sector to postpone the deadline by few more years. It was being resisted by corporates because this move would create two power centres within the company,” he said.

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