SEBI: India should separate the roles of Chairperson and Managing Director

The Securities and Exchange Board of India recently announced that it will not extend the deadline to separate the posts of Managing Director and Chairperson. In April 1, 2020, SEBI asked the Indian companies to separate the roles of chairperson and Managing Director. However, a time period of two years was provided for compliance. Now the regulator has issued a warning that this deadline will not be extended. The announcement comes as by the end of December 2020, only 53% of top 500 entities had complied with this provision.

Why should the roles be separated?

The main objective in separating the roles is to provide a better and more balanced governance structure.

Separation of roles in other countries

Globally, the world seems to move towards separation of the posts. UK and Australia have already moved in favour of the separation. Germany and Netherlands have a two-tier board structure that separates the roles of the board and management.

Legal Provisions

The Section 203 of the Companies Act, 2013 says that an individual shall not be appointed as the chairperson of a company as well as the Managing Director or Chief Executive Officer.

Chairman

Chairman is the person responsible for leading the board. He focuses on strategic matters, sets governance standards and oversees group’s businesses. He plays a crucial role in bringing the effectiveness of the board and individual directors.

Managing Director

A Managing Director is a whole-time director controlling the day-to-day affairs of the company.

SEBI

SEBI is a statutory body established on 1992 under the Securities and Exchange Board of India Act, 1992. The main objective of SEBI is to protect the interests of the investors and regulate securities market. SEBI has the power to appoint committees. A Securities Appellate Tribunal has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.

Under the Securities Laws (Amendment) Act, 2014, SEBI shall regulate any money scheme of worth Rs 100 crores.

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