The Securities and Exchange Board of India (Sebi) has asked Indian companies to work towards separating the roles of chairperson and managing director (MD).

The deadline is a year away, but the market regulator is hinting that it won’t extend it.

“Listed entities were initially required to separate the roles of chairperson and MD/ CEO from April 01, 2020 onwards. However, based on industry representations, an additional time period of two years was given for compliance. The regulation will now be applicable to the top 500 listed entities by market capitalization, with effect from April 01, 2022. As at the end of December 2020, only 53 per cent of the top 500 listed entities had complied with this provision. I urge the eligible listed entities to be prepared for this change in advance of the deadline,” said Ajay Tyagi, chairman of Sebi, in a speech at the CII Corporate Governance Summit.

He said the rule is not to weaken the position of promoters 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 excessive concentration of authority in a single individual,” he said.

Other countries, too, have implemented a similar rule to avoid conflict of interest.

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

Team – Intellex Strategic Consulting Pvt Ltd

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