October 2018

IlI -Advised SEBI Move to Separate Chairman-CEO’s Post in Companies

Jayant M. Thakur
Chartered Accountant

Background

A recent amendment to the SEBI LODR Regulations 2015 requires that Chairperson of a listed company shall not be an executive director or related to the Managing Director/CEO. This applies to top 500 listed companies in terms of market capitalisation. Such companies will have to ensure the change is made not later than 31st March 2020.

 

This change looks good on paper as in principle, it is wrong to concentrate power in one person / family in large quoted companies in India. However, I submit that this particular requirement does not make sense in Indian context as many large companies are family controlled. It will disrupt board structure of such companies and is actually counter productive. It could also harm the company’s business and public image.

 

While the genesis of this can be traced back to norms of corporate governance in the West, the immediate trigger for this amendment is a recommendation of the Kotak Committee’s report on corporate governance released in October 2017. The Companies Act, 2013, has certain provisions governing this, but they are not as restrictive and absolute as these new provisions under the SEBI Regulations. Let us thus review the provisions under Companies Act, 2013, what the Kotak Committee has recommended and finally what are the new provisions and their implications.

 

Provisions regarding split of post of Chairman/CEO under the Companies Act, 2013

Section 203 of the Act, which applies to certain specified companies, provides certain restrictions on appointing a Chairperson who is also the MD/CEO. The proviso to this section, which contains this provision, reads as under:

 

“Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,—?

 

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