Separating posts. SEBI notifies voluntary norms for separating post of Chairman, MD/CEO

Market regulator Securities and Exchange Board of India (SEBI) has notified voluntary norms for splitting the post of Chairman and Managing Director or Chief Executive Officer for 500 top listed companies.

“The listed entity may appoint separate persons to the post of the Chairperson and the Managing Director or the Chief Executive Officer, such that the Chairperson shall be a non-executive director and not be related to the Managing Director or the Chief Executive Officer as per the definition of the term “relative” defined under the Companies Act, 2013,” SEBI said in a notification. Earlier, it was mandatory and was to come into effect from April 1.

24 categories

The Companies Act defines relatives with 24 categories. These include members of Hindu Undivided Family, husband-wife, father, mother (including step-mother), son (including stepson), son’s wife, daughter (including step-daughter), father’s father. father’s mother, mother’s mother, mother’s father, son’s son, son’s son’s wife, son’s daughter, son’s daughter’s husband, daughter’s husband, daughter’s son, daughter’s son’s wife, daughter’s daughter, daughter’s daughter’s husband, brother (including step-brother), brother’s wife, sister (including step-sister) and sister’s husband.

The notification is the outcome of SEBI Board’s decision taken in February after it found that out of top 500 listed companies, only 54 per cent followed the norm. It said that expecting the remaining about 46 per cent to comply with these norms by the target date would be a tall order and accordingly said it would be voluntary.

Better corporate governance

Ashish K Singh of Capstone Legal says the majority of leading companies in India are promoter or promoter family driven. This amendment will go a long way to ensure better corporate governance in companies to protect the interests of shareholders. “It also sends a clear message to international investors that India is now taking proactive steps to become more transparent on how listed companies are run,” he said.

Sudish Sharma, Executive Partner with Lakshmikumaran & Sridharan Attorneys, says the appointment of separate persons to the post of the Chairperson and the Managing Director or CEO is now voluntary for the listed companies. The said requirement was proposed in order to ensure good corporate governance and reduce excessive concentration of authority with a single individual. However, “present amendment has been brought by SEBI in light of representations received from industry expressing difficulties such as over-regulation and excessive compliance,” he said.

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