SEBI Strictness: Companies will not be able to create a single person Chairman-MD from April 2022
Market regulator SEBI said that the top-500 listed companies will not be able to appoint a single person as chairman and managing director (MD)/CEO from April 2022. The objective is not to weaken the promoters’ position but to improve the operating structure of these companies.
In January 2020, the Securities and Exchange Board of India (SEBI) deferred the arrangement of the chairman-MD, at the request of the companies, for two years. SEBI chairman Ajay Tyagi said at the Confederation of Indian Industry (CII) program on Tuesday, “By 2020, only 53 percent of listed companies were following the system, while many companies have got the post of chairman and MD.” This can lead to a conflict of interest situation.
In view of this, changes are being made, for which listed companies should be prepared before the deadline. This will help reduce the more rights a person has. “Globally, work is on to split the posts of chairpersons and MD/CEOs,” he said. In Britain and Australia, the debate has now shifted towards separating the two positions.
Institutional investors follow ‘stewardship’ rules to bring transparency
The SEBI chairman said that institutional investors such as banks, insurance companies and pension funds should follow the ‘stewardship’ rule to ensure full accountability to customers and beneficiaries. This rule helps institutional investors fulfill their obligations. It also empowers to oppose the decisions of the Board of Directors which are not in the interest of all the stakeholders. SEBI had in December 2020 framed a ‘stewardship’ code for mutual funds and alternative investment funds of all categories, which came into effect from July 1, 2020.
What is the stewardship rule?
The stewardship rule is a theory-based framework. This helps the institutional investors fulfill their obligations, thereby protecting the customers and beneficiaries besides adding value to them.
