Uday Kotak-led SEBI committee on corporate governance has submitted its report today. The committee has recommended splitting of roles of Chairman and MD-CEO for listed companies.

The rationale to split the post with the chairman as the leader of the board and chief executive or managing director as the leader of the management is to provide a better and a more balanced structure by enabling effective supervision of the management, said the Sebi panel on corporate governance.

“Corporate democracy is built into the interconnected arrangement amongst the board, the shareholders and the management, where the board supervises the management and reports to the shareholders,“ the Kotak committee report said.

“The issue of whether to separate the roles of the chairperson and the CEOMD, while not a recent phenomenon, is a growing concern in corporate governance worldwide,“ it said.

The panel said the separation of posts will be applicable to companies that have at least 40% shares owned by public shareholders.

The proposal can be extended to all listed entities from April 1, 2022, it said.

RC Bhargava, chairman at the county's largest car maker Maruti SuzukiBSE 0.45 %, said splitting the roles of chairman and CEO gives a company “two people who have a strong understanding of the organisation and are independent of each other“.

“So both can share their knowledge and take the best possible decision in the interests of the company ,“ he said. “Having that knowledge centralised in one person may not be the best optimal decision sometimes...that is in a way an extension of independent directors because not always do independent directors have complete knowledge of a company ,“ Bhargava said.

The panel said the new structure will help reduce an excessive concentration of authority to a single individual, clarify respective roles of the chairperson and CEOMD, ensure that the board tasks are not neglected by an individual due to lack of time, and allow to bring in experienced skills for the two positions.

India's richest businessman Mukesh Ambani holds the twin posts at the country's largest company by market value Reliance Industries. So do Pawan Munjal at India's largest motorcycle maker Hero MotoCorp and R D Shroff at the country's largest agrochemicals producer United Phosphorous.

All three will have to make changes if the market regulator Sebi accepts the panel recommendation after receiving public comments.

A Reliance spokesperson declined to comment.

Harsh Mariwala, chairman at consumer products maker Marico, said splitting the role of chairman and CEO is an international trend “so that the chairman focuses on board effectiveness and has an independent view point“.

“Ultimately who is the promoter and how much he or she believes in the spirit of corporate governance is critical," Mariwala said. “One individual can be a good chairman and CEO too and, therefore, it all depends on following the spirit of governance and not mere norms.“
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