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Separation Of CMD Roles Not Aimed At Weakening Promoters' Position: Ajay Tyagi

New framework to improve corporate governance structure of listed companies

Capital markets regulator Sebi Chief, Ajay Tyagi on Tuesday said the new framework to split the roles of chairman and managing director is not aimed at weakening the position of promoters, rather it is a move aimed at improving corporate governance structure of listed companies.

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This would also help in reducing excessive concentration of authority in a single individual, he said at a virtual event organised by industry chamber CII on corporate governance.

In addition, separation of roles would provide a better and more balanced governance structure, he added.

As of December 2020, around 53 per cent of the top 500 listed entities were in compliance with the regulatory provision, he added.

The Securities and Exchange Board of India (Sebi), in January 2020, deferred by two years to April 1, 2022 its directive for listed companies to split the roles of Chairman and Managing Director (CMD) amid demand from corporates.

Under the Sebi norms, the top 500 listed entities by market capitalisation were mandated to comply with the requirement of separation of the roles of chairperson and managing director (MD) or chief executive officer (CEO) with effect from April 1, 2020.

Currently, many companies have merged the two posts as CMD (chairman-cum-managing director), leading to some overlapping of the board and management, which could lead to conflict of interest. Consequently, the regulator in May 2018, came out with its norms to split the post.

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The norms were part of the series of recommendations given by the Sebi-appointed Kotak committee on corporate governance.

Tyagi also stressed on the need of making adequate disclosure to all stakeholders by listed companies during Covid-19 situation.

The entities need to disclose the financial impact of the pandemic and should not resort to selective disclosure, he added.

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