A recent report reveals that 37 of India's top 100 listed companies continue to combine the Chairperson and CEO roles. This practice, which merges executive authority with board oversight, remains a point of concern for investors monitoring corporate governance. While current regulations allow this, the structure raises questions about the strength of independent checks and balances within these boards.
Corporate governance in India remains a focus for investors as recent data from the Excellence Enablers survey shows that 37 out of India’s top 100 listed companies continue to merge the roles of Chairperson and Managing Director or CEO. While this practice is currently legal under voluntary guidelines, it creates a structure where the person responsible for running the company’s daily operations also oversees the board that evaluates that performance.
The Conflict of Interest in Dual Leadership
The central issue with combining these roles is the potential for a conflict of interest. When one individual holds both the power to manage the company and the power to influence board decisions, the traditional checks and balances meant to protect shareholder interests can become weaker. In a typical corporate structure, the board of directors is supposed to act as an objective supervisor of the management team. When the same person heads both, the independence of that supervision can be harder to maintain. This is particularly relevant for family-run businesses, where leadership often remains concentrated within a single group, making external oversight even more important for minority shareholders.
Regulatory Context and Compliance
The current voluntary status of this separation follows a shift in regulatory policy. In 2020, the Securities and Exchange Board of India (SEBI) had initially planned to mandate the separation of Chairperson and CEO roles for the top 500 listed companies, based on recommendations from the Kotak Committee. However, following industry feedback and concerns regarding the difficulty of transition for many companies, the regulator shifted this requirement to voluntary in February 2022. While companies are not legally required to separate these roles, the ongoing persistence of the dual-role model suggests that many firms prioritize continuity over the separation of powers.
Governance Red Flags in Boardroom Meetings
Beyond the dual-role issue, the report highlights other aspects of boardroom efficiency that investors may monitor. The survey flagged that 21 companies held board meetings lasting less than 30 minutes, a duration that observers often view as insufficient for detailed strategic reviews or financial oversight. Additionally, some firms continue to struggle with meeting independent director requirements, with 17 companies failing to meet these benchmarks, and a few public sector undertakings reporting an absence of independent directors altogether.
What Investors Should Monitor
For investors, these governance metrics serve as indicators of how seriously a company takes external oversight. While a dual-role structure does not automatically imply poor performance, it does place a greater burden on the independent directors to be active and critical. Investors may look for signs of strong boardroom engagement, such as regular attendance at meetings, a diverse and truly independent board composition, and clear disclosures regarding board evaluations. Monitoring how a company handles these governance practices can provide insight into the culture of accountability within the firm.