Family Owned Indian Businesses Oppose SEBI Directive On Separating Owners And Managements Of Companies

The Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) have formally written to Union Finance & Corporate Affairs Minister Nirmala Sitharaman opposing recently stipulated norms and seeking a review of these regulations.

The industry bodies have sought a review of the Securities & Exchange Board of India (SEBI) amendment of the ‘Listing Obligations and Disclosure Requirement’ regulations, stating that the chairperson of the board should be a non-executive director and not related to the Managing Director (MD) of the Chief Executive Officer (CEO).

The capital market regulator’s amendments followed the October 2017 recommendations of the Committee on Corporate Governance chaired by Uday Kotak, which had observed that the time is right to introduce the separation of roles of the Chairperson and MD/ CEO of companies listed on the stock exchanges.

While framing the regulations, SEBI had stated that the two persons should not be related either. IT had also stipulated a deadline of March 31, 2020, for the top 500 listed companies to separate the post of Chairman and Managing Director or Chief Executive Officer, and ensure the two are not related.

However, the CII and the FII which comprise India’s top listed companies as well as top industrialists have opposed these norms as well as spoken out against the stipulated norms.

The letter written to the minister by FICCI has stated that 905 businesses in India are controlled by families.

“A mere restriction on having related persons as chairperson and MD / CEO is inadequate to ensure effective board leadership and this decision should be left to the shareholders to decide,” FICCI President Sandip Somany, who is also the Chairman and Managing Director of HSIL Ltd, one of the listed companies affected by the SEBI directive, wrote in a letter dated October 9.

“India’s large-sized corporate business houses like Tatas, Ambanis, Birlas, Godrej, Wadias, Munjals, Mahindra, Mittals, Shapoorji Pallonji, Jindals, Adanis, Anil Agarwal of Vedanta, Bajajs, Bennett Coleman, and many more are managed by family members. The role of family and the family patriarch is quite important in the Indian ethos. Most Indian family businesses have been generating stronger top-line growth than their non-family peers,” the FICCI letter stated.

The CII, too has pointed out that the Companies Act, 2013, itself has left it to shareholders to decide about the management structure of companies.

Section 203 of the Companies Act requires all companies to have a separate Chairperson and MD/ CEO unless the Articles of Association of the company provides otherwise. In other words, it lets shareholders decide.