Prepare to separate roles of chairperson and MD, Sebi chief tells India Inc

Prepare to separate roles of chairperson and MD, Sebi chief tells India Inc

Mumbai: Sebi chairman Ajay Tyagi on Tuesday said corporate India should start preparing towards separating the roles of chairperson and managing director.

Listed entities were initially required to separate the roles of chairperson and managing director(MD) or chief executive officer(CEO) from April 01, 2020 onwards.

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 capitalization, with effect from April 01, 2022.

“As at the end of December 2020, only 53% 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,” Tyagi said on Tuesday at an online summit organised by the confederation of Indian Industry(CII) on corporate governance.

The Sebi chief said the underlying idea for such a separation is not to weaken the position of promoter, but to improve corporate governance.

“The objective is to provide a better and more balanced governance structure by enabling more effective supervision of the management. 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 said.

He further added that, globally also the needle seems to be moving more towards the separation of chairperson and MD/CEO.

“In U.K. and Australia, the debate has tilted in favour of separating the two posts. Germany and Netherlands have a two-tier board structure, separating the roles of board and management,” Tyagi said.

The Sebi chairman also said despite

various efforts made in the past, the regulator is yet to get ideal solutions to issues such as – ‘ensuring independence of independent directors’, ‘selecting the best suited persons as independent directors’, ‘making their role more effective and meaningful etc.”

The regulator recently came out with a consultation paper touching some of these issues. Sebi said there is a need to have a fine balance between the role and responsibilities of controlling shareholders and minority shareholders.

“Another issue commonly raised is that howsoever we may strengthen the processes related to independent directors, ones who are genuinely not independent will never be. It is true that human behaviour cannot be fully regulated by norms,”Tyagi said.

“However, it is our endeavour through improved processes and disclosures, to bring in greater balance, transparency and quality in the selection of independent directors and functioning of the corporate boards.”

The regulatory body head also said company boards should ensure that adequate disclosures are provided timely to stakeholders and there is no asymmetry of information.

“Disclosures should include the impact of Covid-19 on business, performance and financials.. It is important to ensure that when listed entities disclose material information related to the impact of CoVID-19, they should not resort to selective disclosures, keeping in mind the principles governing disclosures,” Tyagi said

Last year, Sebi had issued an advisory, providing an illustrative list of information that should be disclosed relating to the impact of the CoVID- 19 crisis.

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