MUMBAI: With less than a year left for top listed companies to separate the positions of chairman and managing director, markets regulator Sebi’s chairman on Tuesday indicated that the last date to comply with the rule may not be extended again. He also expressed his frustration that India Inc is yet to ensure that independent directors on their boards are truly independent.
Speaking at a corporate governance summit organised by industry trade body CII, Sebi chief Ajay Tyagi said that the top 500 listed companies were initially required to separate the roles of chairperson and MD/CEO by April 1, 2020.
However, based on industry representations, the deadline was extended by two years. “As at the end of December 2020, only 53% of the top 500 listed entities had complied with this provision. I urge the eligible listed entities to be prepared for this change in advance of the deadline,” Tyagi said.
The underlying idea for such a separation was not to weaken the position of the promoter, but to improve corporate governance, he said. “The objective is to provide a better and more balanced governance structure by enabling more effective supervision of the management. Separation of the roles will reduce excessive concentration of authority in a single individual. Having the same person as chairman and MD brings in conflict of interest,” Tyagi said.
On the issue of independent directors on the boards of listed companies, Sebi chief said that despite its efforts, India Inc was yet to get “the ideal solutions to issues such as ‘ensuring independence of independent directors’”, ‘selecting the best suited persons as independent directors’, ‘making their role more effective and meaningful’, etc.”
Another issue was howsoever the related processes were strengthened, “ones who are genuinely not independent will never be. It is true that human behaviour cannot be fully regulated by norms.” However, Sebi will continue to work in improving the processes and disclosures “to bring in greater balance, transparency and quality” in selecting independent directors and functioning of corporate boards, he said.
Touching on the subject of gender diversity on the boards of corporate India, the Sebi chief said that although ideally half of each board should consist of women or at least close to that, the actual figures are far from that. Gender diversity brings with it several economic and governance benefits.
Research shows that companies having better gender diversity on their board have generally outperformed financially those which did not have such diversity, Tyagi pointed out.
Since Sebi and the corporate affairs ministry pushed for such board diversity, from around 5-6% women on boards in 2014, the number increased to 12% within just a year in 2015 for top 500 companies. Currently, the figure is at around 17%.
“While, there has been an improvement in gender diversity at the board level, data shows that representation of women in key board committees such as the audit committee and nomination and remuneration committee remains quite low at around 7%. Clearly, we still have a long way to go,” Tyagi said.