Due to the very poor response from corporates on separating the roles of chairman, managing director (MD) and chief executive officer (CEO) before the April 2022 deadline, market regulator Securities and Exchange Board of India (SEBI) has decided to make its implementation voluntary for the top-500 listed companies.
In a meeting held in New Delhi, the SEBI board found that as of 31 December 2021, only 54% of the top-500 listed companies have followed its directions to separate the roles of chairman, MD and CEO. Earlier in January 2020, SEBI had extended the deadline to April 2022.
It says, “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% amongst the top 500 listed companies as of September 2019, has progressed to only 54% as of 31 December 2021. Thus there has been barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years, hence, expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date would be a tall order.”
“Considering rather an 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, 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’,” SEBI says in a release.
In March 2018, SEBI had recommended separation of the posts of CEO and MD and chairperson that was supposed to be first applicable for the top-500 entities from 1 April 2020.
Earlier in October 2017, the Uday Kotak Committee
set up by SEBI (the third such committee set up by SEBI over the past two decades) had recommended separation of powers of the chairperson (or leader of the board) and CEO and MD or leader of the management, in a phased manner to provide a better and more balanced governance structure.
The Kotak committee had recommended limiting directorship to a maximum of eight in listed companies. In addition, the Kotak committee had said that from 1 April 2019, at least half of the board of directors should comprise independent directors.
Coming back to the SEBI board meeting, which also decided to amend SEBI (Alternative Investment Funds) Regulations, 2012. The amendment would provide flexibility to category III alternative investment funds (AIFs) to calculate the investment concentration norm—based either on investable funds or on net asset value of the fund while investing in listed equity of
The investee company. This would be subject to the conditions specified by the board, the market regulator says.
SEBI board also approved amendments SEBI (Debenture Trustee) Regulations, 1993, SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and SEBI (Listing Obligations and Disclosure Requirements), 2015.
According to the market regulator, these amendments would align the regulatory framework for ‘security cover’ instead of ‘asset cover’, disclosure of credit ratings and due diligence certificate.
“Further, references with respect to the disclosure of credit ratings have been rationalised and due diligence certificate for unsecured debt securities has been prescribed in SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. These amendments are expected to bring uniformity and consistency in these regulations,” SEBI says.
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