MUMBAI: The top 500 listed entities will not be required to split the post of chairman and MD/CEO compulsorily from April 1 this year. Sebi at its board meeting on Tuesday decided to make the corporate governance reform applicable on a “voluntary basis”, given the “unsatisfactory” level of compliance by the companies so far.
The Kotak Committee, formed by Sebi in June 2017, recommended splitting the post to provide a better and more balanced governance structure in corporate practices. Sebi in its board meeting of March 2018 had mandated that effective April 1 2020, the top 500 listed entities will ensure the chairperson would be a non-executive director and not be related to the MD and CEO. The Sebi at the instance of industry extended the deadline for the implementation by two years.
However, noting the “unsatisfactory” level of compliance where only 54% of the companies had complied with this rule by December 2021, up from 50.4% in September 2019, Sebi decided to make the provision voluntary “at this juncture”. It cited constraints amid the pandemic and representations from various stakeholders as reasons for easing the norm.
“Making the reform voluntary gives the go-by to a well-established principle of corporate governance whereby the posts are held by independent persons,” said corporate lawyer HP Ranina. “Considering the difficulty faced by even the top 500 companies in identifying the right candidates to helm their board, it is only fair that the same is made voluntary,” said Chirag M. Shah, Of counsel, Mansukhlal Hiralal & Co.