SEBI dilutes stand, makes splitting of CMD post voluntary

This decision has come a week after Union Finance Minister Nirmala Sitharaman, while making it clear she was not giving any “diktat” to an independent body, said the regulator should hear concerns related to the rule from India Inc.

The deadline for the splitting of the CMD post for the top 500 listed companies was April 1, 2022.

“On a review of the compliance status, it is seen that the compliance level, which stood at 50.4 per cent amongst the top 500 listed companies as on September 2019, has progressed to only 54 per cent as on December 31, 2021,” SEBI said.

There has been barely a 4 per cent incremental improvement in compliance by the top 500 listed companies over the last two years. Hence, expecting the remaining about 46 per cent of the top 500 listed companies to comply with these norms by the target date (April 1, 2022) would be a tall order, SEBI said in a statement after its board meeting in New Delhi.

“Considering 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”, it said.

SEBI said it is still receiving representations from industry bodies and corporates “expressing compelling reasons, difficulties and challenges for not being able to comply with this regulatory mandate”.

The change in the rule has come four years after SEBI first asked the top 500 listed companies in May 2018 to split the post of chairman and managing director by April 2020. The SEBI decision came after the recommendations of the Uday Kotak-led panel on corporate governance.

Subsequently, in November 2019, SEBI chairman Ajay Tyagi said the regulator had already given “sufficient time” to companies to understand the rule and plan for it. “Extending the time (beyond April 2020) will only mean that they (the companies) don’t want to do it,” he had said.

Despite this, SEBI, in January 2020, extended the timeline for the top 500 companies to comply with this rule by two years to April 1, 2022. It said that companies needed more time to comply with the mandatory rule. Some industry bodies were also demanding a review of the order on splitting of the CMD post.

Currently, several listed companies have integrated the two positions as CMD (chairman-cum managing director) that overlap the board and the management in some cases, which could cause conflict of interest. Among big corporates, a few such as Mahindra & Mahindra and Wipro Ltd have already complied with the guideline on the top posts.

Managements of many other companies, including Reliance Industries Ltd, Hindustan Unilever and PSUs like Oil and Natural Gas Corporation Ltd, have not split the post yet.