The problem clause in Sebi's dictat to split CMD's post
Sonal Khetarpal January 14, 2020
The Securities and Exchange Board of India (Sebi) is now giving two more years to listed companies to separate the roles of the chairperson and managing director. However, it has not specified any reason for the deferral.
According to the latest gazette notification to SEBI's (Listing Obligations and Disclosure Requirements) Regulations, the last dates for companies to comply is now April 1, 2022 (It was April 1, 2020 earlier).
There has been considerable pushback from firms on this. According to Prime Database, 162 firms out of NSE-500 has not complied with the notification and have the same person as its Chairman, MD and CEO.
Experts are of the opinion that the clause that MD should not be related to the chairperson is inconvenient for the companies. "If it was just the separation of chairman and MD then there might not have been as much resistance because in promoter-led companies the founder could have made their son or daughter the MD," Shriram Subramanian, MD of Bengaluru-based proxy advisory firm InGovern.
But the concern is, says Subramanian, firms are sharing their perspective only nearer to the deadline and didn't comment on it when it was first recommended in 2018. "This makes the regulator ineffectual and gives the impression that companies can use lobbying to suit their interests," he says. He adds that it also penalises the 230 companies that are compliant with the law because some of them would have definitely changed the leadership roles after the recommendations were put forth.
However, Ronesh Puri, Managing Director of Delhi-based executive search firm Executive Access says that promoter-led companies will lose their competitive advantage when the notification comes into effect. According to Deloitte's report 'From the Family to the Firm,' 85 per cent of all companies in India are family run enterprises. He says it is unfair to the person who has spent his or her whole life building the business and then has to get someone else on the Board. Promoters also want to keep the business within their family and pass it to the next generation. "It will be a disincentive for these wealth creators to grow their business and pass it on as legacy to their next generation. It should be an imperative but companies should have a choice whether they want to segregate the roles."