The Securities Exchange Board of India (“SEBI”), in its board meeting dated February 15, 2022, announced the decision to appoint separate Chairperson/ Chairman and Managing Director in the top 500 listed companies as voluntary. This decision comes ahead of the April 01, 2022, deadline, to mandatorily split the roles of Chairperson and Managing Directors (“MD”)/ Chief Executive Officer (“CEO”), against the backdrop of a mere 4% incremental improvement in compliance by top 500 listed companies.[1]

SEBI had first come up with the mandatory requirement of separation of roles at the management level in 2019 as a measure to strengthen corporate governance. This requirement was based on the recommendations of the Kotak Committee on Corporate Governance, which emphasised on creating an effective and balanced governance structure by promoting management supervision. Understandably, the learnings behind these suggestions came from the shortcomings of a tight knit family owned and managed business, a structure currently occupying more than 85% of the Indian market.[2]

Accordingly, SEBI inserted Regulation 17 (1B) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (“LODR Regulations”), wherein the Chairperson of the top 500 listed entity was supposed to be a non-executive director and not a relative of the MD or CEO.

This amendment was considered as a welcome step in creating some distinction between the roles and responsibilities of a Chairperson and that of a MD/ CEO, as the former had not been defined under the Companies Act 2013 (“Act”). To further understand the role played by these two separate positions, it is important that we analyse the definitions provided under the Act.


Under Section 2(18) of the Act, a CEO means “an officer of a company, who has been designated as such by it”. Further, Section 2(54) of the Act defines MD as “a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.”

Thus, a MD or CEO is one who enforces substantial power in the management of the day-to-day affairs of the Company. On the other hand, a Chairperson, as defined under the LODR Regulations shall be a non-executive director.

Understandings from the Cadbury Report

As the Act provides little clarity on the roles and responsibilities of a Chairperson, we look towards the analysis of the Cadbury Report, which first dealt with accountability of large organisations and set the tone for a corporate governance code globally.

One of the major recommendations of the Cadbury Report was that the position of a Chairman and CEO should be held by two separate individuals as that would lead to improved oversight. The authors of the Cadbury Report pointed out that there were notable differences in the roles undertaken by a CEO against that of a Chairperson. A CEO was considered responsible for the entire executive functioning of the company, which required constant implementation of corporate strategies, review of operational activities and overall performance of the company.

On the other hand, the position of a Chairman was to be held by an independent person who monitors and oversees the management by assessing the performance of executive directors. Thus, the Chairman’s role was to measure the performance of the executive directors, including that of the CEO.[3]

Since the role of the Chairman was to evaluate the management’s performance, it was understood that if the two positions are held by the same person or someone related to the CEO, the person may either end up evaluating himself or the relative. This may result in biases, thus making the entire process redundant. With most Indian companies being family run, the requirement to separate the roles made sense, to prevent the concentration of power in the hands of a single individual and also uphold the interest of the stakeholders.

Voluntary v. Mandatory

The arguments in favour of mandatorily splitting the positions is an ongoing controversial discussion in various parts of the world since it only happened post a major corporate scandal. For instance, some key companies such as Boeing, Wells Fargo, Under Armour decided to split the roles after the personal interest of the CEO, also holding the position of a Chairman, were probed into.[4] Currently, there exists no legal obligations to split the roles. Constant shareholder activism is forcing companies to reconsider their stance.

Thus, when recommendations were given by the Kotak Committee, it was believed that separation of managerial positions, especially for Indian companies, would bring more oversight responsibility and debate into the executive decisions taken by a family run business. Like most corporate governance norms, this recommendation was also found as a mandatory provision when SEBI first introduced it in the LODR Regulations, as experience had shown that the Indian legislators and regulators distrust the voluntary ‘comply-or-explain’ approach to corporate governance for Indian companies.[5]

However, while the amendment was a representation of the above principle, the relaxing of this requirement now would be considered as a breather for family-owned companies. Especially since an unrelated CEO or MD can stand in the way of succession planning, wherein senior members undertake positions of oversight and junior members transition into roles requiring day-to-day management of the company.

Further, the option of voluntary separation allows companies to think of a flexible set up as per their situation. Since current research has not shown any definitive growth in a firm’s performance or governance quality due to an independent non-executive Chairperson, companies can choose a stance as they like.


It is understood that while there might not be enough research to show a direct correlation between the growth of a company and the separation of roles, there may still exist great merits in separating the positions of a CEO and Chairperson. Other than adding structural advantages and increasing oversight, separate roles ensure that all important executive decisions are put to considerable thought and debate.  Separation may also bring more skilled professionals with better experience in handling complex situations.

As the concept of shareholder activism is catching up in India, an independent Chairperson may provide comfort to activist investors, leading to strong corporate governance structures in the market. However, for now, relaxation by SEBI may be considered as a blessing in disguise, allowing companies the freedom to choose the option that fits their circumstances best and chalk out a comfortable plan as and when the need arises.






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Photo of Smruti Shah Smruti Shah

Partner in the General Corporate Practice at the Mumbai office of  Cyril Amarchand Mangaldas. Smruti specialises in foreign investments into India, public and private mergers & acquisitions, joint venture and the SEBI Takeover Regulations. She has advised top tier Indian as well as…

Partner in the General Corporate Practice at the Mumbai office of  Cyril Amarchand Mangaldas. Smruti specialises in foreign investments into India, public and private mergers & acquisitions, joint venture and the SEBI Takeover Regulations. She has advised top tier Indian as well as foreign companies, private equity players and the promoters and understands the deal dynamics from the investor’s and the target’s perspective.

She is core member of the firm’s Germany Desk. Smruti is also a qualified Company Secretary. She can be reached at

Photo of Aviral Chauhan Aviral Chauhan

Principal Associate in the General Corporate Practice at the Mumbai office of Cyril Amarchand Mangaldas. Aviral advises on a full range of corporate matters, including mergers & acquisitions and private equity. He can be reached at

Photo of Priya Gupta Priya Gupta

Associate in the General Corporate practice at the Mumbai office of Cyril Amarchand Mangaldas. Priya has graduated from Gujarat National Law University in 2020. Her experience includes advising on general corporate matters. She can be reached at