Views on improving the integrity of global capital markets
20 July 2020

The Case for Mandatory Separation of Chairperson and CEO Roles in India

The separation of chairperson and CEO roles is considered a good corporate governance practice. According to the CFA Institute Corporate Governance of Listed Companies, a dual role may “give undue influence to executive board members and impair the ability and willingness of board members to exercise their independent judgment.”[1]

Most countries either require or recommend separation of independent directors, but India had long incentivized this separation by requiring a higher minimum ratio (50% instead of 33%) of independent directors on boards on which the chair is also the CEO. In 2017, the Kotak Committee on Corporate Governance issued a report recommending the separation of chair and CEO in companies with significant public shareholding. In response, in early 2018, the Securities and Exchange Board of India (SEBI), the Indian securities regulator, mandated the separation of chair and CEO for the top 500 Indian companies, ranked by market capitalization, effective April 2020. The rule, however, faced stiff resistance from the industry, and in January 2020, SEBI deferred the implementation by two years, to April 2022.

Critics of the regulation argue that separation is a western concept not applicable for India. But separation of roles is a good practice for different countries, even if the context is different. In developed markets with dispersed shareholding, separation of roles might address the agency conflicts between shareholders and management, whereas in countries like India with concentrated shareholding, separation may be needed to address the agency conflict between controlling and minority shareholders.

Critics also argue that the separation question is best left to shareholders. Shareholder activism in India is at a nascent stage, however, and the legal recourse for minority shareholders in cases of oppression or fraud could be long and tortuous. Therefore, a case can be made for stronger regulations.

Throughout this debate, the investor perspective has been clearly missing. To address this deficiency, the CFA Institute worked with CFA Society India to conduct a survey of its members this February, seeking their opinion on the measure, on additional safeguards they would consider given the deferment, and on independent directors. The survey was sent to 3,207 members and 108 responses were received (response rate of 3.4%).

The main results of the survey follow.

  • Chairperson and CEO Separation

We asked members to provide their opinion on each of the three requirements of chairperson and CEO separation: (1) one person should not perform both roles, (2) the two should not be related, and (3) the chairperson should be a nonexecutive director. We wanted to not only assess overall support for these requirements but also uncover any nuances — for example, an investor may oppose one person performing a dual role but may not be concerned about an executive director performing the role of chairperson.

An overwhelming 92% of the 108 respondents agreed or strongly agreed with the first statement; 87% agreed with the second; and 70% agreed with the third.

  • Additional Interim Safeguards

Given SEBI’s decision to defer the rule, we also asked members what interim additional measures they would support to strengthen board independence in companies without a separation of roles. More than half of the respondents (59%) supported increasing the proportion of independent directors. In other words, although the current rules already set the floor on independent directors at 50%, our members supported having more independent directors than executive directors in such companies. In addition, 48% supported the idea of setting fixed chairperson terms, with an extension subject to the approval of disinterested shareholders. Other choices — including incentives such as premium listings in exchanges (24%) or no safeguards required (14%) — did not garner as much support.

  • Effectiveness of Independent Directors

The need for separation goes hand in hand with the effectiveness of independent directors. More than half of the respondents (56%) disagreed or strongly disagreed with the statement, “Independent directors have effectively discharged their duties in the last few years, given expectations from their roles,” and only 19% agreed with this statement. Most respondents who disagreed (85%) cited the lack of independence from the promoter, and their lack of preparation in board meetings (46%), as the reasons for their disagreement.


Transitions are never easy, and SEBI’s decision to defer the rule was prudent considering the circumstances. The reasons for the rule remain, however, whether because of the dominance of family-owned firms, abuse of minority shareholders as evidenced in related-party transactions, or relatively weak legal protections for minority shareholders. We hope that SEBI stays the course and implements the measure in 2022 to strengthen India’s corporate governance.

Image Credit @ Getty Images/aphrodite74

[1] M. Orsagh, L. Rittenhouse, and J. Allen, The Corporate Governance of Listed Companies, 3rd ed. (CFA Institute, 2018), 14.

About the Author(s)
Sivananth Ramachandran, CFA

Sivananth "Siva" Ramachandran, CFA, is the Director of Capital Markets Policy, India at CFA Institute. In his role, he is responsible for advocating policy positions on issues that impact Indian capital markets, including corporate governance, ESG, and financial reporting, to name a few. Siva was part of a SEBI working group that reviewed the related party transaction regulations. He is frequently quoted in media. Siva has nearly 13 years of experience in financial services. Prior to joining the CFA Institute, he spent five years at Morningstar, and led their global index product development team. He also served as a spokesperson for sustainability at Morningstar India. Prior to his time at Morningstar, Siva spent nearly five years at MSCI where he co-authored research papers on small cap investing, portfolio construction, and economic exposure. Siva has an MBA from the Indian Institute of Management, Lucknow. He also holds the chartered financial analyst (CFA) and professional risk management (PRM) designations, and the fundamentals of sustainability accounting (FSA) credential provided by Sustainability Accounting Standards Board (SASB).

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