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Less Than 100-days To Go For Crucial Boardroom Changes

SEBI guidelines are expected to kick-in from April 1 mandating separation in roles of Chairperson and MD

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In less than 100-days, a clutch of top-500 listed companies will need to announce either a new Managing Director, or a new Chief Executive officer and fill the post where today only one person is wearing multiple hats—of Chairperson-cum-MD/CEO or where the chairperson is in an executive role.

 

A quick research of the board of directors of top-500 listed companies throws up names like Reliance Industries, State Bank of India, ITC, Coal India, Adani Ports, ONGC, Bharti Airtel and HUL among several others. In these boardrooms, the Chairperson is either an executive or holding multiple designation of MD/CEO. In such instances, the chairpersons will be required to become a 'non-executive' chairperson and also make appointment of MD/CEO that are unrelated to them.  

 

But why is this change necessary?

 

Market regulator Securities and Exchange Board of India (SEBI) has mandated a clear separation in the roles of chairperson and managing director as per an internal committee’s recommendation in 2017-18. The additional provisos also say that the chairperson should be a non-executive director and not related to the managing director or the CEO. Since these rules come into effect starting April1, 2020, the companies may be required to adhere to them within the stipulated time-frame. 

 

However, many family-controlled businesses have already shifted a large part of their control to a trust, etc. and moved themselves in the non-executive roles.

 

There are enough examples in say the Godrej family, GMR, Mahindra and Mahindra etc. where the family has transferred part of its ownership in the company to trusts to simplify succession planning.

 

In fact, the largest industry-lobby body, the Confederation of Indian Industry (CII) has already shared its observations with the Ministry of Corporate Affairs and Finance highlighting the fact that the Companies Act 2013 had left it to the shareholders to decide on this issue. Therefore, SEBI guidelines appear to be more like an order. Secondly, experts in company law refer to some of the past orders from SEBI and erstwhile Company Law Board that do not call for separation in the roles of chairperson and the MD. "A company's board is capable of deciding what will work in its best interest. And then how to go about it. Orders or guidelines may just put several companies at a disadvantage if forced to obey," says a senior corporate lawyer currently advising one of the bigger corporate houses.


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