Separation of Chairman and MD roles by listed companies to be voluntary: SEBI

Accordingly, SEBI had directed listed companies to separate the two roles from April 1, 2020. This deadline was extended to April 1, 2022.

“As the revised deadline is less than two months away, on a review of the compliance status it is seen that the compliance level, which stood at 50.4 percent amongst the top 500 listed companies as of September 2019, has progressed to only 54 percent as of December 2021,” the SEBI release said.

“Thus, there has been barely a 4 percent incremental improvement in compliance by the top 500 listed companies over the past two years. Hence, expecting the remaining about 46 percent of the top 500 listed companies to comply with these norms by the target date would be a tall order,” the release said.

SEBI said it continued 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.

“Considering a rather unsatisfactory level of compliance achieved so far, with respect to this corporate governance reform, various representations received, constraints posed by the prevailing pandemic situation and with a view to enabling the companies to plan for a smoother transition, as a way forward, the SEBI board at this juncture, decided that this provision may not be retained as a mandatory requirement and instead be made applicable to the listed entities on a voluntary basis,” the release said.

SEBI (LODR) Regulations were amended in May 2018 mandating that the chairperson of the board shall be a non-executive director and not be related to the MD or CEO as per the definition of the term “relative” defined under the Companies Act, 2013, for top 500 listed entities.

During an interview with CNBC-TV18, Sunil Munjal, chairman of Hero Group, said: "Separation of MD and CEO roles is not a compulsion in western economies."

"I am glad that the board at SEBI thought it fit to make the announcement now because there were companies getting pushed to the edge since the would have become effective from April 1, 2022. 85 percent odd companies in India are family-owned businesses. To expect every family company to segregate this role compulsorily was being felt as unfair."

Munjal said there have been so many additions to the regulations in terms of better governance, how management and board roles are separated, many decisions go to shareholders and the majority of shareholders are required to make a decision, so the industry already has all the checks and balances.

"Of course, some companies will switchover but I don’t think there will be a flood of companies switching over tomorrow, especially now that it has become voluntary," Munjal told CNBC-TV18.

Chandrajit Banerjee, Director General of CII, also welcomed the decision and said: “The CII had submitted that the amendment with regard to separation of the roles could lead to over-regulation and act as an impediment to a conducive business environment."