News: SEBI proposes demarcation in the roles of Chairman and CEO

#Updates

SEBI proposes demarcation in the roles of Chairman and CEO

In order to prevent concentration of management powers in the hands of a single individual, a committee set up by Securities Exchange Board of India (SEBI) is considering a proposal to separate the role of a Chairman and Managing Director (MD) or Chief Executive Officer (CEO) of listed companies. In various companies, especially the state-owned enterprises, have a single person holding the post of both the Chairman as well as the MD. Although the issue has already been discussed by the Primary Market Advisory Committee (PMAC) and is also supported by legal and industry experts, it is being cautioned that such a rule may lead to major re-structuring of the board structure of listed companies in India. Having a separate Chairman will enable the board to freely express views on the management as well as effectively fulfill the regulatory requirements apart from providing feedback as well as guidance for the CEO. While this practice is already followed in the US and UK where the role of a Chairman is clearly demarcated from that of a CEO, it is a decision made by individual companies in India on whether the role needs to be separated or not. However, as per the voluntary guidelines on corporate governance issued by the Ministry of Corporate Affairs for public companies and large private firms to have clearly distinct roles and responsibilities for the Chairman and MD or CEO. The clear demarcation of the roles of the Chairman and the MD or CEO is essential to avoid conflicts on grounds of interest and integrity and also for the betterment of the stakeholders in the long run.

In order to prevent concentration of management powers in the hands of a single individual, a committee set up by Securities Exchange Board of India (SEBI) is considering a proposal to separate the role of a Chairman and Managing Director (MD) or Chief Executive Officer (CEO) of listed companies. In various companies, especially the state-owned enterprises, have a single person holding the post of both the Chairman as well as the MD. Although the issue has already been discussed by the Primary Market Advisory Committee (PMAC) and is also supported by legal and industry experts, it is being cautioned that such a rule may lead to major re-structuring of the board structure of listed companies in India. Having a separate Chairman will enable the board to freely express views on the management as well as effectively fulfill the regulatory requirements apart from providing feedback as well as guidance for the CEO. While this practice is already followed in the US and UK where the role of a Chairman is clearly demarcated from that of a CEO, it is a decision made by individual companies in India on whether the role needs to be separated or not. However, as per the voluntary guidelines on corporate governance issued by the Ministry of Corporate Affairs for public companies and large private firms to have clearly distinct roles and responsibilities for the Chairman and MD or CEO. The clear demarcation of the roles of the Chairman and the MD or CEO is essential to avoid conflicts on grounds of interest and integrity and also for the betterment of the stakeholders in the long run.

Topics: #Updates, C-Suite

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