A large section of the investor community is in favour of separating the roles of chairperson and CEO, a survey suggests. The two persons occupying these roles should not be related, and the chairperson should be a non-executive director, they say.
The findings are part of a membership survey conducted by the CFA Institute in partnership with CFA Society India, consisting of 108 of the latter's members as respondents.
Respondents who supported separation cited greater accountability and vibrant debates, and a lower likelihood of promoters enriching themselves at the expense of minority shareholders as the principal reasons for doing so. Most members believe that companies with a separation of roles may outperform or slightly outperform those that do not separate the roles.
Considering deferment of the decision for mandatory separation, more than half of the respondents (59 per cent) supported increasing the proportion of independent directors as interim additional safeguards.
More than half the respondents (56 per cent) disagreed or strongly disagreed with the statement: “Independent directors have effectively discharged their duties in the last few years, given expectations from their roles”. Only 19 per cent agreed with it. Among those who disagreed, 85 per cent cited the lack of independence from the promoter as the reason for their disagreement.
In late 2017, the Kotak Committee on Corporate Governance's report recommended separation of roles of chairperson and CEO for companies with at least 40 per cent public shareholding, and expanded this recommendation to all listed companies by April 2022. In response, in early 2018, the Securities and Exchange Board of India (Sebi) mandated the separation of chairperson and CEO roles for the top 500 Indian companies by market capitalisation, effective April 2020. The rule faced stiff resistance from the industry, and Sebi deferred the implementation of the rule by two years to April 1, 2022.
