Market regulator Securities and Exchange Board of India (SEBI) on February 15 changed the requirement for listed companies to separate posts of chairperson and MD/CEO to voluntary from mandatory.
The decision was taken at a board meeting of the regulator.
The provision for mandating separation of the role of chairperson and MD or CEO of listed companies will be applicable from April 1, 2022 for top 500 firms, the SEBI press release said.
Meanwhile, the SEBI board had said that compliance level has reached 54 percent as on December 31, 2021 and at this juncture, this provision may not be retained as a mandatory requirement and instead be made applicable to the listed entities on a ‘voluntary basis’.
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“Considering rather 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 SEBI said.
Earlier on June 2017, the SEBI had set up a committee on corporate governance — under the chairmanship of Uday Kotak — which had made recommendations related to the separation of role of chairperson and MD or CEO of listed companies. The main rationale for the recommendation was that separation of powers of the chairperson and MD or CEOs may provide a better and more balanced governance structure by enabling more effective and objective supervision of the management.
Despite the SEBI Board’s approval, in May 2018, the order to implement it from April 1, 2020, the market regulator extended further by two years in January 2020. The board had cited then that “firms may need more time to prepare themselves for the transition and various other difficulties highlighted by the industry representatives”.
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As per the new provisions, the top 500 listed entities will have to ensure that the chairperson of the board will be a non-executive director and will not be related to the managing director (MD) or the Chief Executive Officer (CEO) as per the definition of the term “relative” defined under the Companies Act, 2013.
