Sebi asks listed cos to split CMD post

New Delhi: CAPITAL markets regulator Sebi on Tuesday asked listed companies to work towards splitting the roles of chairman and managing director before the April 2022 deadline, as the new directive is not aimed at weakening the position of promoters. Listed entities were initially required to separate the roles of chairperson and MD/CEO from April 1, 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 1, 2022.

"At the end of December 2020, only 53 per cent 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," Sebi chairman Ajay Tyagi said at a virtual event organised by industry chamber CII on corporate governance.

He, further, said the idea for such a separation is not to weaken the position of promoters, but to improve corporate governance. The objective of such a separation is to provide a better and more balanced governance structure by enabling more effective supervision of the management, Tyagi said. "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 added.

Currently, many companies have merged the two posts as CMD (chairman-cum-managing director), leading to some overlapping of the board and management, which could lead to conflict of interest and consequently the regulator in May 2018, came out with its norms to split the post. The norms were part of the series of recommendations given by the Sebi-appointed Kotak committee on corporate governance.

Globally too, Sebi chief said that the needle seems to be moving more towards the separation of chairperson and MD/CEO roles. In the UK 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 the management. The OECD, the international standard setter for corporate governance, also recommends that the two posts should be separated as a good governance practice.