Capital market regulator SEBI must take a relook at its norm requiring Chairman and Managing Director/CEO of listed companies to be unrelated, the Confederation of Indian Industry (CII) has suggested.

In its representation to SEBI on its recent amendments to LODR regulations, the apex industry chamber has submitted that the norm requiring that the Chairman and MD/CEO should not be related could be ‘onerous’ and moreover may not be required.

This is especially so in the light of the checks and balances already present in other SEBI regulations to counter Ill-effects of such a situation, CII has said. The chamber has also highlighted that such a requirement — keeping the Chairman and MD/CEO as unrelated — is not mandatory in even many advanced countries such as the US, UK, France, etc.

CII is of the view that the decision should be left to the will of the shareholders and it is important that Indian entrepreneurs are not placed at a disadvantage by imposing such requirements, the CII has said.

It maybe recalled that SEBI had on May 9 this year announced amendments to its SEBI (listing obligations and disclosure requirements) Regulations 2015. The amendments stipulated that with effect from April 1, 2020, the top 500 listed entities should ensure that the chairperson of the board of a listed entity should be a non-executive director and not be related to the MD or CEO according to the definition of term ‘relative' under the Companies Act 2013.

Cap on age

While CII welcomed most of the amendments stating that it would boost corporate governance reforms in the country, the chamber, however, sought rethink on two changes — the proposed amendment with regard to separation of roles of non-executive Chairman and MD/CEO and age limit for appointment of continuation of non-executive director.

These two norms would lead to ‘over regulation’ and act as an impediment to overall compliance and the business environment, the CII has said.

CII has noted that several checks and balances already existed in countering the need for a new norm that mandates separation of role of Chairman and MD/CEO in listed entities. These include Audit Committee, Nomination & Remuneration Committee, separate meeting of independent directors and board evaluation.

The current construct of the audit committee continues acts as an adequate check against any potential risks resulting from the chairman being related to an executive position, the chamber has said.

Also, in the case of nomination and remuneration committee (NRC), the voice of independent directors will be significant as 50 per cent of the committee comprises of such directors. This will serve as potential check against any mala fide intent, CII has said.

The construct of the NRC with 50 per cent independent directors helps to ensure that no decision can be taken unilaterally by a chairman who is related to a person in an executive position, according to CII.

Spirit of entrepreneurship

Founders and their successors are in many cases the largest shareholders in a company. Since they have a large proprietary interest in the company and will be most affected by a corporate failure, this by itself acts as a check against the chairman and related MD/CEO using powers in a manner which is detrimental to the long-term interests of the company, the CII has said.