Separation of Chairman and MD roles by listed companies made voluntary: SEBI

The Capital markets regulator Securities and Exchange Board of India (SEBI) on Tuesday said that the requirement to split the positions of Chairperson and Managing Director/Chief Executive Officer at listed companies may not be retained as a mandatory requirement and instead be made applicable to the listed entities on a "voluntary basis".

The decision was taken at a board meeting of SEBI.

SEBI on the recommendation of the Uday Kotak Committee on corporate governance has, earlier, asked the listed entities to split the roles of Chairperson and MD/CEO effective from April 1, 2021. Later, the deadline was extended to April 1, 2022, onwards.

The decision on extending the deadline was based on industry representations, an additional time period of two years was given for compliance. The norms were part of the series of recommendations given by the Sebi-appointed Uday Kotak committee on corporate governance.

The rationale behind the recommendation was that separation of powers of the chairperson and MD/CEO would provide a better and more balanced governance structure by enabling more effective and objective supervision of the management.

The market regulator in a statement said, "As the revised deadline is less than two months away, on a review of the compliance status it is seen that the compliance level, which stood at 50.4 per cent amongst the top 500 Listed Companies as on September 2019, has progressed to only 54 per cent as on December 31, 2021. Thus, there has been barely a 4 per cent incremental improvement in compliance by the top 500 listed companies over the last two years, hence, expecting the remaining about 46 per cent of the top 500 listed companies to comply with these norms by the target date would be a tall order."

Meanwhile, SEBI continues to receive representations from industry bodies and corporates expressing various compelling reasons, difficulties and challenges for not being able to comply with this regulatory mandate.

SEBI added, "Considering rather an unsatisfactory level of compliance achieved so far, with respect to this corporate governance reform, various representations received, constraints posed by the prevailing pandemic situation and with a view to enabling the companies to plan for a smoother transition, as a way forward, SEBI Board at this juncture, decided that this provision may not be retained as a mandatory requirement and instead be made applicable to the listed entities on a "voluntary basis".

The provision for separation of roles of Chairman and Managing Director/Chief Executive Offer entails:

• The Chairperson of the board shall be a non-executive director;
• The Chairperson of the board will not be related to the Managing Director or the Chief Executive Officer as per the definition of the term "relative" defined under the Companies Act, 2013.