This provision is a part of the principles relating to the splitting of the publish of chairman and managing director (MD) and separation of their roles in India’s high 500 corporations by market capitalisation, having identifiable promoters. This guideline was to come into impact from April 1, 2020 however was subsequently deferred for 2 years, following protest from industry.
In a latest letter to Sebi, business physique Confederation of Indian Industry (CII) has reiterated its opposition to this modification, and stated this may lead to over-regulation, whereas appearing as an obstacle to a conducive enterprise surroundings.
‘Over-regulation might Weaken Entrepreneurial Spirit’
“Over-regulation may weaken entrepreneurial spirit which is a key factor for stimulating wealth and value creation for stakeholders and so important in the existing crisis facing the economy due to the pandemic,” CII president and Tata Steel MD TV Narendran instructed ET. “In light of checks and balances already present in the current laws to counter any potential ill-effects of such a situation, it is important that Indian entrepreneurs are not placed at a disadvantage by imposing such requirements.”
The business physique has additionally requested Sebi not to insist that the chairman of the board be a non-executive director.
“Since the compliance date is approaching soon, it is requested to kindly defer the implementation of the provisions relating to the chairperson not being related to the MD & CEO and that the chairperson should be a non-executive director, by two years; if not withdraw altogether, or the requirements may be recommendatory and not mandatory, as requested earlier, therefore, a clarification in this regard may be issued soon,” CII stated in its submission to Sebi final month.
The corporations most impacted by the proposed rule relating to separation of position of chairman and MD are family-run companies and to a lesser extent PSUs which mix the position of chairman and MD.
Business leaders expressed their opposition to these norms to ET.
Bajaj Finserv chairman & MD Sanjiv Bajaj stated in India, majority of companies are household owned, the place information and expertise is handed from one technology to one other. “Chairman and directors are expected to undertake greater responsibility and that’s in conflict with mandating a non-executive role for chairman. These guidelines taken together are not even there in any significant country and we will weaken our competitiveness, especially at a time when the pandemic is on,” he stated.
“It takes years to groom a successor, and in a family owned/managed company, it is often a family member who has been mentored by an elder. In listed entities, independent directors will act as a counterbalance to ensure the best candidate is chosen. However, promoter interest is also aligned to picking the most suitable candidate,” stated Apollo Hospitals joint MD Sangita Reddy.
An electronic mail question despatched to Sebi asking for a touch upon CII’s letter didn’t elicit any response until press time. Sebi chairman Ajay Tyagi had lately stated that sufficient time has been given to business to meet these tips. “I can only make an appeal to the industry to follow it,” Tyagi had stated.
The capital market regulator had proposed the separation of the position of chairman and MD primarily to strengthen company governance by guaranteeing larger accountability of administration to the board.
CII has additionally submitted to Sebi that these amendments transcend the suggestions of the Uday Kotak Committee, by not solely mandating that the chairperson be a non-executive director, however by additionally requiring that the particular person shouldn’t be related to the MD and CEO. This requirement is just not necessary even in superior economies such because the US, UK and France. It locations Indian companies at an obstacle compared with overseas companies, the business physique stated.
The new requirement would have an effect on succession planning because the MD’s place is usually a preparatory one for the following technology member of the family earlier than the particular person turns into the chairman, it stated.
Tyagi had final yr dismissed the suggestion that the chairman and MD be allowed to be related to one another.
“One can understand the argument that it should not be made mandatory but to suggest that both the persons can be related to each other is not acceptable. If they (MD and chairman) are related, then what is the relevance of separating them.” he had stated final September.
According to Prime Database, out of the 485 giant listed corporations that should adjust to the laws relating to the position of chairman and MD, 240 are non-compliant with the proposed tips.
“Nearly half the companies are yet to meet the requirement with just a couple of months to go, despite having four years to comply. This reminds me of the time when the woman director requirement had first come in. Companies kept on hoping for an extension. When no extension was given, you saw a flurry of appointments taking place in the last week of March. You might see something similar this time around as well. Last-minute appointments, of course, can only help in fulfilling the letter of the regulation, not the spirit,” stated Prime Database MD Pranav Haldea.
“It seems like most companies are waiting for the last minute to effect the required change. There is also the chance that the change of guard at Sebi before March 31, 2022 could mean a change in thinking on this crucial requirement that many Indian companies, including notable promoter-driven companies, haven’t yet adhered to,” stated InGovern Research founder & MD Shriram Subramanian.
IiAS, a company governance advisory agency, in a latest observe stated that solely a handful of boards together with Mahindra & Mahindra and Wipro have introduced their plan to adjust to the rule.
“Most others continue to remain silent, unnerving investors, who like clarity and predictability on these issues,” the agency stated.