Markets controller SEBI has reversed the requirement for top 500 listed companies to diverse roles of chairperson and MD & CEO from mandatory to voluntary. Giving out an official statement it notified for same on Tuesday. The regulator had earlier made the separation of the role of chairperson and MD/CEO of listed companies to be must and was to enforced from 01 April 2022.
Assessing a rather unsatisfactory level of obedience achieved so far, with respect to this corporate governance reform, various representations received, restrictions posed by the universal pandemic crisis and with a view to allowing the companies to plan for a smoother shift, as a way forward, SEBI Board at this period, concluded that this provision may not be retained as a mandatory requirement and rather be made applicable to the listed entities on a “voluntary basis.”
Earlier the controller has taken the decision giving the reason that an MD should be responsible for operating the firm, while the chairman should organize and oversee the board. Segregating the roles will result in making the company is run more professionally and power is not reduced in the hands of one individual.
Sebi today also noted that, with the modified deadline less than two months away, upon review, it was formulated that the compliance status which existed at 50.4% amongst the top 500 listed companies as of September 2019, has advanced to only 54% as at the end of December 2021.
Predicting the remaining about 46% of the top 500 listed companies to accept these norms by the target date would be a tall order, Sebi announced. Meanwhile, Sebi continued to earn representations from industry bodies and corporates conveying various compelling explanations, difficulties and challenges for not being able to accept the mandate.
A very strong assertion is given against separation that it impacts the “unity of command” and builds two parallel power centres. On the face of it, the argument looks reasonable; but it requires depth. The idea hinges on the assumption that both the board and the management have the same role.
There is a fundamental drawback to the argument. However, given the importance and the particular nature of the chairmen’s role, it should in principle be distinct from that of the chief executive. If the two roles are incorporated in one person, it depicts a considerable concentration of power.