The board of SEBI has decided that it will be voluntary for listed companies to split the roles of chairperson and managing director, before the April 1, 2022 deadline, the capital markets regulator said in a statement Tuesday. The Securities and Exchange Board of India (SEBI) said it took the decision taking into consideration that 46% of the top 500 companies have still not complied with the requirement.
The board decided against making the provision mandatory “considering the 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,” it said.
SEBI said, with the deadline for mandate just two months away, it did not see much improvement in compliance status of the top 500-listed companies, adding that it would be a tall order to expect all the companies to comply. “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% amongst the top 500 Listed Companies as on September 2019, has progressed to only 54% as on December 31, 2021,” it said.
“Thus there has been barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years, hence, expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date would be a tall order,” it added.
Existing corporate governance framework is very strong and day by day enforcement is also becoming stronger, said Makarand Joshi, founding partner of corporate compliance firm MMJC and Associates. “Hence separation of MD and Chairman position was not a very burning issue. Making it voluntary reflects that government is reciprocating to changes suggested by Industry,” he added.
In 2017, SEBI had set up a committee under Kotak Mahindra Bank’s chief executive Uday Kotak to study corporate governance norms for the listed companies. The committee had recommended the separation of the role of Chairperson and MD/CEO of listed companies in order to provide for a balanced governance structure.
In view of these recommendations, the capital market regulator had made it mandatory in 2018 for listed companies to split the two roles. The mandate was later extended in 2020, and companies were supposed to follow the mandate by April, 2022.