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More time for firms to split MD, CEO posts

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SEBI extends the time for listed companies to separate the roles from April 1, 2020 to April 1, 2022

Top listed firms such as Reliance Industries, HUL, ITC, JSW Steel, Hero Motocorp, TVS Motor and Raymond, along with a long list of other private and government-owned entities, have got two more years to split the position of chief executive officer (CEO) and managing director (MD).

As part of the latest amendment to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, the capital markets regulator postponed the deadline for the separation of the MD and CEO roles for the top 500 companies from the earlier stipulated April 1, 2020 to April 1, 2022. This assumes significance as some of the biggest names of India Inc. had sought a relief in terms of postponing the deadline to comply with the norm notified in May 2018.

Sufficient time given

Less than two months ago, SEBI Chairman Ajay Tyagi had said firms had been given sufficient time, and seeking extension of the deadline would only mean that companies do not want to comply.

“Sufficient time has been given and extending it will only mean that they don’t want to do it. Leader of the board (chairman) and that of management (CEO), if they are two different persons then, perhaps, there can be balance in powers and responsibilities, and decision making,” Mr. Tyagi had said on November 20 while addressing the media post a board meeting.

As many as 160 of the top 500 listed entities are yet to split the MD and the CEO posts, according to data from Prime Database. The list includes most public sector undertakings, private sector entities such as Adani Ports & Special Economic Zone, HCL Technologies, Dr. Reddy’s Laboratories, MRF, Bharat Forge, Edelweiss Financial Services, PVR and Escorts, among others.

“Industry had various concerns in implementation, including seeking a clear regulatory demarcation on the role and responsibility under the Companies Act, 2013 and SEBI’s Listing Regulations for chairman and managing director,” said Sumit Agrawal, founder, Regstreet Law Advisors.

“Certain boards had also asked for bright-line tests for segregation of overlapping roles. For instance, section 27 of SEBI Act, 1992 casts no liability on chairman but MD continues to be responsible for the acts of the company or its board of directors,” the former SEBI officer added.

The SEBI notification stated that with effect from April 1, 2022, the chairperson of any of the top 500 listed entities would be a non-executive director and not be related to the MD or CEO as per the definition of the term “relative” defined under the Companies Act, 2013.

“Companies that have implemented the change in board structure without waiting for last date, might feel [let down] with this postponement. Tendency to postpone compliance due to a change in law has developed a habit amongst stakeholders to wait till the last date and see if there is any postponement,” said Makarand Joshi, partner, MMJC and Associates LLP, a corporate compliance firm.