Analysis | Splitting CMD post: Did SEBI go overboard to give a breather to India Inc?

Market regulator SEBI would have done well to introduce a staggered implementation schedule for its controversial governance norm around splitting of Chairman and Managing Director post rather than move the needle completely to the other end of making the norm “voluntary” from April 1 this year, said governance experts and corporate observers. 

This approach could have helped avoid the current embarrassment that the regulator is faced with before public and investing community while at the same time ensuring its mandate of protecting minority shareholders in Corporate India is well served, they added. 

SEBI could have enforced the norm from April 1, for those entities where the public interest element is high in terms of their shareholding or those Finance companies which are systemically important ones. Manufacturing companies could have been given a breather and given an extension for implementation, some governance experts suggested. 

While nobody can question the good intent of SEBI behind the introduction of the norm around splitting of the post of Chairman and Managing Director, it is the “implementation” aspect that holds the key and this time round put SEBI in a tight spot. Four years time period is after all good time period for Corporate India to adjust to and conform to the requirement, critics noted. The latest episode clearly shows how Corporate India had played its cards well by approaching the Finance Minister Nirmala Sitharaman, who readily obliged and asked SEBI to hear out the concerns of Corporate India.  However, many experts don’t see the latest SEBI move affecting the way foreign investors would look at India and the regulatory oversight. After all, it is not often that one sees a regulator do a climbdown on the norms it has set for the industry to adhere to.  This latest SEBI move is also unfair on those 54 per cent of the 500 listed companies who took the steps for conforming to the new norm and might even think of going back to the earlier regime now that adhering to the norm had become “voluntary”.  Also, many corporate sector observers and professionals don’t see the SEBI Board decision of Tuesday — when it made splitting of Chairman and Managing Director post a voluntary provision — as a U-turn by the regulator, but only a pause before it goes ahead with its chosen reform path in the coming days.  Sampath Rajagopalan, Partner-Compliance and Governance, EY said “I don’t see this as a u-turn by SEBI. It should be seen as a breather for Corporate India and the intent of SEBI seems to remain invested in the same. The key point is SEBI has not done away with the norm in its entirety. They have made it voluntary. The idea seems to be to allow companies to evolve to a situation where they can adopt it. I don’t think this SEBI move should at this stage have any immediate direct impact on how investors will look at India” Santosh Kumar, Partner, Deloitte India said the case for separating the Chair and CEO Role is to eliminate conflicts and provide a more balanced governance structure. “Separation of these roles seeks to increase the effectiveness of the Board and reduce concentration of authority in a single individual.”

Globally also, this is a keenly debated aspect of governance, with countries like U.K. and Australia tilting in favour of the separation of the Chairperson and CEO roles and Germany and Netherlands going a step ahead to adopt a 2-tier Board structure, separating the roles of board and management.

“While SEBI has relaxed the mandatory condition and it continues to be a voluntary provision, India Inc. should make earnest efforts and consider the segregation of the Chair and CEO roles to elevate the levels of Corporate Governance”, Kumar said.

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