The SEBI headquarters in Mumbai, India (Photographer: Adeel Halim/Bloomberg)

Top Corporates Gear Up To Split CMD Post; Smaller Ones Give Tenures Beyond SEBI Deadline

Large corporate such as Hindustan Unilever Ltd. and Reliance Industries Ltd. have started making arrangements to comply with regulator SEBI’s directive to split the roles of chairman and managing director by April 1, 2020. However, several smaller companies are still giving their CMDs tenures beyond the deadline.

As the season of AGMs continues, many companies have sought shareholders’ approval for extending tenure of their CMDs.

That, in several cases will fall foul of market regulator Securities and Exchange Board of India’s guidelines for the top 500 listed companies in the country to have a non-executive chairman and a separate person as CEO or managing director from April, 2020.

According to officials, SEBI is keen to extend this requirement to all listed companies eventually. For now, it is keeping an eye on top 500 firms which are appointing CMDs beyond the given deadline and will start sending them notices a few months in advance.

The defaulters would face strict penal action which may include barring the concerned chairmen or MDs from holding any board position, officials added.

The companies that have proposed to extend the tenure of their CMDs beyond this deadline include PTC India Ltd., whose promoters include a clutch of power sector public sector companies, and firms such as PVR Ltd., JBM Auto Ltd., Gujarat Ambuja Exports Ltd. and Deepak Fertilisers & Petrochemicals Ltd., as per their respective regulatory filings.

It could not be immediately ascertained whether all of them belong to the top-500 club or not.

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Currently, many companies have the two posts merged as CMD (chairman-cum-managing director), leading to some overlapping of the board and management, which regulators and experts feel could lead to conflict of interest.

PTC India has re-appointed Deepak Amitabh as CMD with “effect from Oct.16 this year till he reaches the age of 62 years--up to October 8, 2022. Similarly, PVR also extended the tenure of Ajay Bijli as its CMD and JBM Auto extended the tenure of its CMD Surendra Kumar Arya for five years.

Gujarat Ambuja Exports has re-appointed Manish Gupta as its CMD with “effect from December 28, 2018 upto December 27, 2023.” Besides, Deepak Fertilisers and Petrochemicals Corp. has extended the tenure of SC Mehta for five years.

According to a report by Prime Database, a total of 291 companies (or 58.2 percent) out of top 500 NSE listed entities by market capitalisation will have to appoint non-executive chairpersons, by splitting the CEO/MD and chairperson position.

The data was prepared based on information available till July 18.

These norms are part of the series of recommendations given by the SEBI-appointed Kotak committee on corporate governance.

“Rationale of the SEBI’s adoption of Kotak Committee recommendation has clearly been to do away with the concentration of power that gets vested with the Chairman and managing director position in a company,” said Anjali Agarwal, partner at Corporate Professionals.

She said that April 1, 2020 is a sunset date set by the regulator so that the present period can be taken as a transition time to be ready by the date set. This strictly means that the companies should not be waiting till April 2020 and initiate the bifurcation then.

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There have been cases wherein the companies continue to appoint the CMDs with complete disregard to the spirit of the SEBI regulation.
Anjali Agarwal, Partner, Corporate Professionals

According to an analysis of information available with the stock exchanges, many big companies have, however, begun taking steps to comply with SEBI’s directive.

Reliance Industries, last month, extended the tenure of Mukesh Ambani, who also holds the position of chairman on its board, as the ‘managing director’ of the company for another five years. This will become effective on expiry of his present term of office--April 19, 2019.

Besides, HUL appointed Sanjiv Mehta, who holds the position of managing director and chief executive, as its chairman. However, the company’s board decided that current tenure of Mehta as a chairman will be till March 2020 as part of its effort to comply with SEBI’s rules.

Further, diversified ITC has extended the tenure of YC Deveshwar as non-executive chairman till 2020. Sanjiv Puri, who has taken over as the CEO of the company from February, 2017, has been re-designated as its managing director.

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