SEBI makes separation of roles of chairperson and MD of top 500 companies 'voluntary'

Mumbai (Maharashtra) [India], February 15 : The Securities and Exchange Board of India (SEBI) on Tuesday changed the requirements for listed companies to separate roles of chairperson and managing director (MD) or chief executive officer (CEO) to 'voluntary' from 'mandatory'.
Earlier the market regulator had asked the top 500 listed companies to split the role of chairperson and MD or CEO before April 2022.
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", SEBI said in a statement.
The decision was taken at a SEBI board meeting on Tuesday.
The deadline for separating the roles of chairperson and MD has been extended multiple times. The SEBI had earlier set a deadline of April 1, 2020, for splitting the role of chairperson and MD of the top 500 companies. It was later extended to April 1, 2022.
SEBI had set up a committee on Corporate Governance in June 2017 under the Chairmanship of Uday Kotak (Kotak Committee) with a view to seeking recommendations to further enhance the Corporate Governance norms for the listed companies. The Committee was represented by diverse stakeholders including Large Listed Companies, Industry Bodies such as CII & FICCI, Professional Bodies like ICAI & ICSI, Proxy Advisory Firms, Global consultancy firms, Law firms, Stock Exchanges, Academicians, etc.
One of the recommendations of the Committee was related to the separation of the role of chairperson and MD/CEO of listed companies.
The main rationale for the recommendation was that separation of powers of the chairperson and MD/CEO may provide a better and more balanced governance structure by enabling more effective and objective supervision of the management.
The SEBI Board, in its meeting of March 2018, had considered and approved the proposals including the one relating to separation of the role of Chairperson and MD/CEO of listed companies.
In pursuance of SEBI Board's approval, vide SEBI (LODR) was amended in May 2018 mandating, with effect from April 1, 2020, top 500 listed entities to ensure that the Chairperson of the board shall be a non-executive director and not be related to the Managing Director or the Chief Executive Officer as per the definition of the term "relative" defined under the Companies Act, 2013.
Thereafter, considering that the companies may need more time to prepare themselves for the transition and various other difficulties highlighted by the industry representatives, the deadline for compliance was extended by two years in January 2020.
As things stand now, the provision for mandating Separation of the role of Chairperson and MD/CEO of listed companies will be applicable from April 01, 2022, for top 500 Companies.
"As the revised deadline is less than two months away, on a review of the compliance status it is seen that the compliance level, which stood at 50.4 per cent amongst the top 500 Listed Companies as on September 2019, has progressed to only 54 per cent as on December 31, 2021," SEBI said.
Thus there has been barely a 4 per cent incremental improvement in compliance by the top 500 listed companies over the last two years, hence, expecting the remaining about 46 per cent of the top 500 listed companies to comply with these norms by the target date would be a tall order, it said.
"Meanwhile SEBI continues to receive representations from industry bodies and corporate expressing various compelling reasons, difficulties and challenges for not being able to comply with this regulatory mandate," SEBI noted in the statement.