Follow Us:
Friday, May 29, 2020

Splitting of CMD post: SEBI defers deadline to April 2022

Currently, several listed companies have integrated the two positions as CMD (chairman-cum managing director) that overlap the board and the management in some cases, which could cause conflict of interest.

By: ENS Economic Bureau | Mumbai | Published: January 14, 2020 3:46:36 am
Splitting of CMD post, SEBI, SEBI deadline for Splitting of CMD post, indian express Only about 50% of top 500 listed firms have complied. (File)

In a big relief to the corporate sector, the Securities and Exchange Board of India (Sebi) has extended the timeline for top 500 listed companies to comply with its new rule, which mandates a split in the post of chairman and managing director of a company and also bars relatives from holding key jobs in a company, by two years to April 2022.

The regulator issued a notification on its website on January 10 extending the timeline. Sebi, in May 2018, asked the top 500 listed companies to split the post of chairman and managing director by April 2020, following the recommendations of the Uday Kotak-led panel on corporate governance.

However, data from stock exchanges reveal that at present, only around 50 per cent of the top 500 listed entities are in compliance with the aforementioned regulatory provision. Sebi has also been receiving various representations with respect to the above regulatory requirement including from industry bodies like Ficci and CII. The representations, seen together with the compliance levels, highlight the present levels of unpreparedness of listed entities to comply with the above regulatory provision, according to market sources.

Given the above backdrop and considering the current economic scenario, it has been decided that, in order to ease the compliance burden, additional time may be provided to listed entities to comply with this regulatory provision, sources said. Accordingly, the date of implementation of the above regulatory provision has been deferred to April 1, 2022.

Explained

Delaying Apr 2020 target will help lower compliance burden

At a time when companies are busy working their way around slowdown in the economy to generate growth in revenue and profitability, Sebi’s decision to provide a two-year window to comply with the requirement of splitting the post of chairman and managing director from April 2020 to April 2022 comes as a big relief. While the order offering relaxation will help ease compliance burden and give them additional time to comply with this regulatory provision, exchange data reveals that at present, only around 50 per cent of the top 500 listed entities are in compliance with the regulatory provision.

Currently, several listed companies have integrated the two positions as CMD (chairman-cum managing director) that overlap the board and the management in some cases, which could cause conflict of interest.

Meanwhile, Federation of Indian Chambers of Commerce and Industry (Ficci) Monday welcomed Sebi’s decision to extend the deadline. “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,” Ficci president Sangita Reddy said.

While Sebi has deferred the implementation of the new norm to 2022 , Ajay Tyagi, in November 2019, said the regulator had already given “sufficient time” to companies to understand the rule and plan for it. “Extending the time (beyond April 2020) will only mean that they (the companies) don’t want to do it,” Tyagi had said.

Among big corporates, only two companies— Mahindra & Mahindra and Wipro Ltd— have moved to implement the guideline on the top posts. Managements of many other large companies, including Reliance Industries Ltd and Bharti Airtel Ltd, are yet to make any moves towards restructuring to comply with Sebi rules.

Section 203 of the Companies Act requires all companies to have a separate Chairperson and MD/ CEO unless the Articles of Association of the company provides otherwise. According to Prime Database, a research firm that tracks capital markets, the Chairperson and the MD/ CEO are the same in 159 of the top 500 listed companies by market capitalisation.

The regulator’s amendments followed the October 2017 recommendations of the Committee on Corporate Governance chaired by Uday Kotak, which observed the time was right to introduce the separation of roles of Chairperson and MD/ CEO of listed entities. In framing the regulations, Sebi went a step ahead and said the two persons should not be related either. —With PTI

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

Advertisement
Advertisement
Advertisement
Advertisement