Oct. 31, 2009 (The Hindu Business Line) --
Arun S
The Government is considering a proposal to incorporate such a provision in the Companies Bill, 2009 to strengthen corporate governance and prevent incidents like the Satyam (NYSE:SAY) scam, official sources told Business Line.
In this regard, the Corporate Affairs Ministry had discussions with bodies such as the Institute of Company Secretaries of India, they said.
To avoid a repeat of the Satyam scam, where its erstwhile promoter and Chairman, Mr Ramalinga Raju, placed his brother Mr Rama Raju as the company’s CEO and exercised indirect control, there would be clear guidelines demarcating the duties and powers of the two posts.
A senior official in the Ministry said, “There is no such provision in the Companies Bill. But these global best practices would be incorporated through legislation in the Bill. We are holding discussions on it.” Companies may be asked to comply or explain to stakeholders the reasons for non-compliance.
When contacted, Mr N.K. Jain, Secretary and CEO, ICSI, said, “ICSI recommends introduction of this concept as part of the legislation or the listing agreements, but in phases. Listed companies and companies where public interest is involved – like banks that have taken deposits from public – can be covered in the first phase.”
Globally, according to executive search consulting firm Spencer Stuart’s Board Index of 2008, 39 per cent of S&P 500 companies now separate the Chairman and CEO roles, against 16 per cent in 1998.
There were only 61 per cent (296 companies) having a combined chair/CEO in 2008, down from 84 per cent in 1998.
Spencer Stuart’s 2009 India Board Index said, “The trend in India towards separating the roles of Chairman and CEO is encouraging.”
Of the surveyed BSE Sensex companies and a few other top companies, the number of companies with a non-executive chairman increased between 2007 and 2008, from 43 to 54 per cent. This compares favourably with the US, where only 39 per cent of boards were led by non-executive chairmen, and less favourably with the UK, where 89.3 per cent of chairmen were named as part-time, it said.
"Separation of the posts would ensure that there would be healthy and constructive debates between the two persons holding these posts. If the promoter holds both the posts, it would not only lead to greater workload, but also result in conflict of interest," said Mr Nishchae Suri, former Principal of Hewitt Associates (NYSE:HEW) and currently President, School Of Inspired Leadership.
The Chairman manages the Board, approves the company’s strategies and policies, and is accountable to investors/shareholders, but is not involved in the everyday management of the company. But the CEO/MD drives the day-to-day management of the company, frames/implements policies and is accountable to the Board. While the Chairman can be fired by investors, the CEO/MD can be fired by the Board.
