Sebi blinks, gives India Inc two more years to split CMD position

Move follows hectic lobbying by industry groups

The Securities and Exchange Board of India (Sebi) has given India Inc another two years to separate the positions of chairman and managing director (MD) in companies, giving a breather to many top guns of industry. The move follows resistance by big companies and industry bodies, which cited a compliance burden amid a downturn in the economy. The regulator had mandated the top 500 listed companies by market value to separate the chairman and MD posts by April 1 this year.

Through a gazette notification dated January 10, the date of compliance has been postponed to April 2022. Sebi hasn’t given any reasons for the deferment. Despite Sebi giving ample time to India Inc to meet the requirement, many companies were yet to comply with this, with less than three months left for the deadline. It is learnt that many companies had approached the ministries concerned and the Prime Minister’s Office (PMO), seeking a review of the regulation, while some of them also pitched for doing away with the requirement altogether. Sources said the government and Sebi had consulted the matter. 

Governance experts termed the postponement a regressive step and said the move eroded the credibility of regulatory bodies. They said the provisions were made after an exhaustive consultation with stakeholders. “Companies had enough time to implement the decision. If they had gone about it seriously, there would have been no difficulty,” said M Damodaran, chairperson, Excellence Enablers.

Prithvi Haldea, founder chairman, Prime Database, said: “This regulation was well-intentioned and Sebi had enough good reasons to mandate it. Though not relevant, a downturn in the economy has apparently been used as an excuse. Two years effectively means a toned-down regulation.” 

Keeping the two offices apart is seen as a key corporate governance requirement globally because the chairman of a company is the head of the board, while the MD is in charge of daily operations and has to report to the board.

“Splitting these roles better secures the best interests not just of the company and it's shareholders but also of the CMD themselves as it embeds clarity of responsibility and  accountability across the organisation,” Rajiv Bajaj, managing director, Bajaj Auto told Business Standard. He, however, said the choice of the individuals should be dictated by merit and that ought not to be sacrificed at the altar of lesser considerations such as the relationship between them. “Had Sebi  not over reached with the latter requirement perhaps industry would have implemented the former on schedule,” said Bajaj 

Experts say the requirement is imperative in India, where many companies are promoter-driven. Haldea said many listed firms were treated as proprietary firms by promoters, with all powers concentrated in the family. However, some say that irrespective of deferment, serious companies will abide by the norm. Amit Tandon, MD of Institutional Investor Advisory Services (IiAS), said, “Though the regulator has deferred the deadline, I expect forward-looking companies to separate the roles, enabling more effective supervision.”

According to the NSEinfobase.com data, more than 200 companies are required to make changes to their board structure.