Analysing SEBI’s Move of Voluntary Splitting of Chairperson and MD/CEO Roles

Ashima Obhan 

Samridhi Poddar

What do Mukesh Ambani, Gautam S Adani, Sanjiv Bajaj and Sajjan Jindal have in common? They all serve as both as the Chairman and the Managing Director (MD) of their respective companies. 

In March 2018, the Securities and Exchange Board of India (SEBI) adopted an amendment to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), inserting regulation 17(1B). This was intended to ensure that, from April 1, 2020, the chairman of the boards of directors of the top 500 listed firms must be a non-executive director who is not connected to the company’s MD or chief executive officer (CEO). Although the deadline was extended to April 1, 2022, SEBI notified in its press release of 15 February 2022 that it will change the mandate for separating the two jobs to a voluntary one. 

History of the Separation of the Role of Chairman and MD/CEO 

SEBI established a committee on corporate governance in June 2017 under the chairmanship of Uday Kotak (Committee), intending to elicit proposals to strengthen the corporate governance standards applicable to listed businesses. The Committee deliberated on various aspects of corporate governance, including those affecting the effective functioning of the boards of directors of publicly-traded companies, and came up with several recommendations and suggested measures for reforming and improving corporate governance practices. 

One of the Committee’s proposals concerned separating the roles of Chairman and MD/CEO of publicly traded firms. The recommendation’s primary premise was that separating the roles of the Chairman and MD/CEO may result in a more balanced governance structure by enabling more effective and objective management monitoring. The SEBI board of directors examined and accepted many recommendations during its March 2018 meeting, including one dealing to the separation of the roles of Chairman and MD/CEO of listed firms. 

The LODR was amended in May 2018 with the approval of the SEBI Board, mandating that, with effect from April 1, 2020, the Chairman of the board shall – 

  1. be a non-executive director; and 
  2. not be related to the Managing Director or Chief Executive Officer as defined under the Companies Act, 2013. 

Following that, in January 2020, the deadline for compliance was extended by two years, citing the possibility that businesses would require additional time to prepare for the shift and a variety of other challenges raised by industry groups. Thus, the clause mandating separation of the roles of Chairman and MD/CEO of publicly traded businesses would have become effective for the top 500 companies beginning April 1, 2022. 

However, with the amended deadline less than two months away, SEBI found that the compliance level, which was at 50.4 percent among the top 500 listed companies in September 2019, has increased to just 54 percent by December 31, 2021. Thus, with just a 4% incremental gain in compliance over the previous two years, expecting the remaining 46% of the top 500 listed businesses to comply with these standards by the target date would have been very difficult. Given this unsatisfactory level of compliance achieved thus far concerning this corporate governance reform, the variety of representations received, the constraints imposed by the prevailing pandemic situation, and the desire to enable companies to plan for a smoother transition, SEBI decided that this provision should not be retained as a mandatory requirement but rather made applicable to listed entities on a voluntary basis. 

Current Legal Framework 

I. Companies Act, 2013

The Companies Act 2013 expressly prohibits an individual from being appointed or reappointed as both the chairman and the MD or CEO of a business at the same time. This rule, however, applies only to listed companies and public companies with a paid-up share capital of 10 crore rupees or more. 

Even for those firms, this need may be waived if one of the following conditions is met: 

  • the company’s articles stipulate otherwise, or 
  • the business does not engage in many lines of business, or 
  • If public enterprises with a paid-up capital of at least one hundred crore rupees and annual revenue of at least one thousand crore rupees are involved in numerous businesses and have nominated a Chief Executive Officer for each of those businesses.
II. SEBI Regulations on LODR 

According to the LODR Regulations, a listed firm may designate distinct individuals to the positions of chairman and MD or CEO. As a result, the clause is not made mandatory.  Additionally, as per clause 49 of the SEBI Listing Agreement, the corporate governance standards for entities seeking to be listed require that, where the chairman of the board is a non-executive director, at least one-third of the board be comprised of independent directors, and at least half of the board be comprised of independent directors if the chairman is an executive director. 


Three hundred of India’s top 500 companies are family-owned. The promoter families often control and operate these businesses or, more rarely, serve on their boards of directors as activist investors. (Photo by Rohit Gangwar/Pexels)
Why did SEBI Reverse its Earlier Decision? 

It’s worth noting that 300 of India’s top 500 enterprises are family-owned. One of the industry’s justifications has been that these promoter-executives developed the companies from the bottom up and have their wealth concentrated in them. These family businesses must address concerns about poor governance, including related party transactions and aggressively implement diversity efforts and whistle-blower procedures. Additionally, the governance approach must suit the current demands of the modern capital market. India Inc has been awoken in recent years by a wave of rules aimed at enhancing corporate governance, including related-party transactions. 

The obligation to divide Chairman and MD/CEO roles at listed firms is currently applied on a voluntary basis, rather than mandating it for all large companies. Instead of enforcing the separation of responsibilities with insufficient proof of success,  SEBI conducted a risk analysis and fine-tuned the system to take on a meaningful shape that is implementable in the Indian context.  At the end of the day, micro-level governance structures are both company and situation-specific. Prescriptive requirements that are all-inclusive would have been detrimental.

Ashima Obhan is a partner at Obhan and Associates. Samridhi Poddar is an associate at Obhan and Associates.


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