Recently SEBI announced that it will not extend the deadline to separate the posts of MD and Chairperson. In 1st of April 2020, SEBI asked the Indian companies to separate the roles of chairperson and MD. However, a time period of 2-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 per cent 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. The United Kingdom and Australia have already moved in favour of the separation. Germany and Netherlands have a 2-tier board structure that separates the roles of the board and management.

Legal Provisions

Section 203 of the Companies Act of 2013 says that an individual shall not be appointed as the chairperson of a company as well as the MD or CEO.

About Chairman

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

About Managing Director

He or She is a whole-time director controlling the day-to-day affairs of the company.

Securities and Exchange Board of India

The statutory body established on 1992 under the Securities and Exchange Board of India Act of 1992. The main objective of SEBI is to protect the interests of the investors and regulate securities market. The Board 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 of 2014, SEBI shall regulate any money scheme of worth Rupees 100 crores.

India should separate the roles of Chairperson and MD India should separate the roles of Chairperson and MD