The Securities and Exchange Board of India (SEBI) modified the need for listed companies to have separate posts of chairperson and managing director (MD) or chief executive officer (CEO) to voluntary from mandatory on February 15.

The decision was made during a meeting of the regulator’s board of directors. After several delays, the revised regulation will now go into effect from April 1, 2022.

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Previously, the top 500 listed companies by market capitalisation were required to split the roles of chairperson and MD/CEO beginning in April this year, after a two-year extension granted by the capital market regulator in January 2020. The rule was originally accepted by SEBI’s board in 2018.

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The market regulator’s decision comes nearly a year after SEBI Chairman Ajay Tyagi asked companies to comply with the proposed new rule before the April 2022 deadline at a Confederation of Indian Industry (CII) event.

The rule’s purpose was to follow global best practices in corporate governance and to avoid the concentration of power in the hands of a single individual in the company. According to SEBI, only 54% of the top 500 companies have so far complied with its rule. 

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“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,” Tyagi had said at the CII event, according to a Business Standard report at the time.

“Considering a rather unsatisfactory level of compliance achieved so far, with respect to this corporate governance reform, SEBI Board at this juncture, decided that this provision may not be retained as a mandatory requirement,” the SEBI said in a press statement.

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Since the market authority suggested the new rule in 2018, numerous heavyweight companies in India’s listed universe have voiced concerns. The major gripe has come from companies where the promoters play a considerable influence in the company’s executive decision-making.

“SEBI continues to receive representations from industry bodies and corporates expressing various compelling reasons, difficulties and challenges for not being able to comply with this regulatory mandate,” SEBI said.

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On February 5, Finance Minister Nirmala Sitharaman commented that the regulator should listen to the view of the Indian companies on the matter. “…I do agree that the way Indian companies are run and built over the decade and over century also depends so much on the family and related members being on the board,” Sitharaman had said.

SEBI’s decision to enforce a separation of the chairperson and MD/CEO responsibilities follows the suggestion of a corporate governance panel chaired by Uday Kotak in 2017 to separate the two roles in order to create a more balanced governance structure for effective and objective management oversight.