SEBI asks listed companies to work towards splitting chairperson, MD/CEO roles before April 2022 deadline
New Delhi | Jagran Business Desk: The Securities Exchange Board of India (SEBI) on Tuesday asked the listed companies to start working towards splitting the chairman and managing director roles before April 2022 guidelines, as the new order is not aimed at weakening the position of the promoters.
The SEBI had extended the deadline given to listed companies by two years. Initially, the listed companies are required to separate the roles of the chairperson and MD/CEO from April 1, 2020. 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 the 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 a 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.
In addition, Tyagi stressed the need to have a fine balance between the role and responsibilities of controlling shareholders and minority shareholders, so that the latter do not misuse the power given to them for the protection of their rights. On independent directors, Sebi chief said it's the regulator's endeavour to bring in greater balance, transparency and quality in the selection of independent directors and functioning of corporate boards.
Sebi had issued an advisory last year, providing an illustrative list of information that should be disclosed relating to the impact of the COVID-19 crisis. "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," he added.
Tyagi said that listed corporates, which raise funds from the public, having a credible and robust corporate governance framework is "sacrosanct to ensure transparency, remove asymmetry of information and enhance investors' trust".
(With PTI Inputs)
Posted By: Talibuddin Khan