Sebi extends deadline to Apr 2022 to split CMD post

Markets regulator Sebi has deferred by two years to April 2022 its directive for listed companies to split the roles of chairman and managing director in view of demand from corporates, and to keep compliance burden lower in the wake of the current economic scenario.

Under the Sebi norms, the top 500 listed entities by market capitalisation were mandated to comply with the requirement of separation of the roles of chairperson and managing director (MD) or chief executive officer (CEO) with effect from April 1, 2020.

The norms were aimed at improving corporate governance structure of listed companies.

Now, the date of implementation of the regulatory provision has been deferred to April 1, 2022, according to a gazette notification dated January 10.

While the notice did not specify any reason for the move, sources said that the decision to defer the implementation has been taken in view of demand from corporates and also to ease the compliance burden amid a slowing economic growth rate.

Securities and Exchange Board of India (Sebi) has been receiving various representations with respect to the regulatory requirements including from industry bodies like Ficci and CII. The representations highlighted the present levels of unpreparedness of listed entities to comply with the directive.

Data from stock exchanges reveal that presently, only around 50 per cent of the top 500 listed entities are in compliance with the regulatory provision.

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.

A large number of big companies including Reliance Industries, BPCL, ONGC, Coal India, Wipro and HeroMotoCorp have a single person holding the twin post of chairman and managing director.

Industry body Ficci has welcomed Sebi's decision to extend its deadline for splitting Chairman and MD posts by two years to April 2022.

"This was part of multiple representations made by Ficci and we appreciate that Sebi has extended the deadline as managerial continuity, unified vision and speed of execution are crucial to business success and are facilitated in family businesses," the industry body's President Sangita Reddy said.

Anjali Aggarwal, Partner at Corporate Professionals, said Sebi's decision to extend the deadline would surely be a sigh of relief for many a family run companies and state controlled entities, but what is needed to be understood is the capital market regulator’s intent behind mandating the splitting of positions.

"Governance measures are the top priority for the regulator and the slightest of conflict of interest is avoidable. The same person holding both the MD as well as chairman positions could have led to such a situation, thus jeopardising the basic essence of corporate governance," she added.