Pressure mounts on power sector PSUs to split CMD post after ITDC’s compliance

While the capital markets regulator Sebi had initially asked listed companies to separate the roles of chairperson and MD/CEO from April 1, 2020 onwards, it decided to give additional two years for compliance based on industry representations.

power sector PSU
The issue of separating the posts of chairperson and MD/CEO holds greater importance in the wake of reported governance issues at some power sector companies, while there have been sudden board-level exits too among other concerns. (Representational image)

With a regulatory requirement for top-500 listed firms to split the position of chairperson and managing director being less than four months away, pressure is mounting on several PSUs including from the power sector to ensure compliance, especially after state-run ITDC complied with this rule following Sambit Patra’s appointment as chairman.

While the capital markets regulator Sebi had initially asked listed companies to separate the roles of chairperson and MD/CEO from April 1, 2020 onwards, it decided to give additional two years for compliance based on industry representations.

The regulation will now be applicable to the top 500 listed entities by market capitalisation, with effect from April 1, 2022. As at the end of 2020, only 53 per cent of the top 500 listed entities had complied with this provision and experts feel that PSUs need to act faster to ensure compliance due to a relatively longer period involved in their board-level appointments, largely because of much more detailed background checks and multiple approvals involved in the process.

The pressure is expected to be greater for power sector PSUs as a majority of those are part of top-500 listed companies by market capitalisation, which are required to split the post by April 1, 2022. These include NTPC, NHPC, PGCIL, REC, PFC, SJVNL, PTC India.

At NTPC, Gurdeep Singh holds the position of CMD, while Abhay Kumar Singh is CMD at NHPC, Ravinder Singh Dhillon is at PFC, K Shreekant at PGCIL, NL Sharma at SJVNL. At PTC India, Rajib K Mishra is holding the additional charge of CMD, after the sudden resignation of Deepak Amitabh from the post.

The issue of separating the posts of chairperson and MD/CEO holds greater importance in the wake of reported governance issues at some power sector companies, while there have been sudden board-level exits too among other concerns.

Pavan K Vijay, founder of legal and financial consulting group Corporate Professionals, said sudden exits in the top management of any company create a void that has to be carefully managed.

“In the case of these government-controlled companies, it is of utmost importance to have a strong governance framework that would allow for a seamless transition to take place without compromising on the process and quality,” he added.

At a corporate governance summit earlier this year, Sebi Chairman Ajay Tyagi had said the underlying idea for separating the two posts is not to weaken the position of the promoter, but to improve corporate governance.

“The objective is to provide a better and more balanced governance structure by enabling more effective supervision of the management. Separation of the roles will reduce the excessive concentration of authority in a single individual as having the same person as chairman and MD brings in conflict of interest,” he had said.

Globally also, the needle seems to be moving more towards the separation of chairperson and MD/CEO posts. In UK and Australia, the debate has tilted in favour of separating the two posts, while Germany and Netherlands have a two-tier board structure, separating the roles of board and management.

The OECD (Organisation for Economic Co-operation and Development), the international standard setter for corporate governance, also recommends that the two posts should be separated as a good governance practice. Earlier this month, when BJP leader Sambit Patra was appointed as Chairperson of India Tourism Development Corporation (ITDC), the official order mentioned the Appointments Committee of the Cabinet has approved the proposal of the Tourism Ministry to split the post of CMD into two posts of ITDC Chairperson and ITDC Managing Director. IAS officer G Kamala Vardhan Rao is now MD at the company.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.