SEBI’s Deferral of the Chair-CEO Separation

Following the Kotak Committee recommendations, the Securities and Exchange Board of India (SEBI) in May 2018 announced that the top 500 Indian listed companies must mandatorily separate the roles of the chair and CEO (or managing director) to prevent a concentration of power in a company’s leadership structure. Moreover, SEBI stipulated that the chairperson should not be related to the CEO. These changes were to take effect from 1 April 2020. However, due to immense pressure from industry circles, SEBI was compelled to defer the implementation provision by two years.

In a column in BloombergQuint, I analyze the merits and concerns of mandating the separation of leadership roles, and wonder whether imposing this requirement as a legal mandate is beneficial as compared to a voluntary approach. Given that leadership issues are company-specific and situation-specific, a mandatory approach that applies to all large companies might be too prescriptive. Instead, a risk-based approach may be more apt, as the separation requirement can be confined to companies that are likely to benefit from it the most.

SEBI has merely postponed the implementation of the separation rule by two years, and has not displayed any inclination to review it. However, given the complexities involved, SEBI would do well to undertake a cost-benefit analysis and fine-tune the mechanism to take on a meaningful shape that is capable of implementation. If not, there is a grave risk that the current scenario will play out again, and the regulator would only have moved the clock back by two years.