Sebi makes separation of Chairman, MD posts voluntary for India Inc

They look after the affairs of the company and have a higher responsibility towards the company. A listed company, could upon the notice of a minimum of 1000 small shareholders or 10% of the total number of the small shareholder, whichever is lower, shall have a director which would be elected by small shareholders. Coordinate with the audit committees and shareholder relationship committee, and other such committees to maintain good corporate governance. Listed entities with more than 40% public shareholding should separate the roles of Chairperson and MD/CEO with effect from April 1, 2020.

The Chairman has been held to have the power to expel a member from a meeting if the Chairman feels such a member seriously interferes with the conduct of the meeting, although appropriate warnings should first be given by the Chairman. The Chairman is also charged with the responsibility of ascertaining the presence of a quorum and the number of members prescribed as competent to transact business. It is the duty of the Chairman to see that a sufficient quorum is present. Hold a general meeting and obtain approval of shareholders for appointment of Managing Director by means of a resolution. It is important to note that the prerequisite for the appointment of the Managing Director is that he must first be appointed as a director of the company.

Compensation for Loss of Office

A non-executive/independent director should be held liable only in respect of any contravention of any provisions of the Act which had taken place with his knowledge and where he has not acted diligently, or with his consent or connivance. Knowledge Test 22.1 If the independent director does not initiate any action upon knowledge of any wrong, such director should be held liable. Additionally, upon knowledge of any wrong, follow up action / dissent of such independent directors from the commission of the wrong should be recorded in the minutes of the board meeting. The minimum age limit for the appointment of a managing director is above 21 years, and the maximum age is 70 years. However, a person above 70 years can be appointed as a managing director by passing a special resolution in the general meeting after obtaining the shareholders’ approval. In such a case, the explanatory statement annexed to the notice for passing such a resolution should state the justification for appointing such a person.

As the CEO is the management position responsible for driving those operations, having a combined role results in monitoring oneself, which opens the door for conflicting views of the position. It is perceived that separating the roles of chairman and chief executive officer increases the effectiveness of a company’s board. This is also provided in the Section 203 of the Companies Act, 2013. The Managing Director of a company oversees the function and performance of different departments.

Chairman, Managing Director, CEO, Proprietor – the Difference

In the case of Wasava Tyres v. Printers Ltd, the Managing Director of the respondent company filed a suit on the company’s behalf against the appellant-tenants for possession. The trial court decreed in favour of the company and directed the tenants to vacate and deliver vacant possession of the tenanted premises. The appellants contended that the Managing Director did not have proper authorisation from the board of directors to file the suit so as to make it binding on the company, and thus the suit filed was bad in law. 15.1 All type of companies should be required to disclose the Directors’/Managerial remuneration in the Directors’ Remuneration Report as a part of the Directors’ Report.

The difference between chairman and managing director requires that every company must have at least 3 directors in the case of public limited companies, minimum 2 directors in the case of private limited companies and a minimum 1 director in the case of one-person companies. The company could appoint more directors bypassing the special resolution in its general meeting. Thus, it can be seen that the role performed by a CEO/MD is inherently different from that of the chairman. While a CEO’s focus remains on the smooth functioning of the business of the company so as to make maximum profits, the chairman’s role is to responsibly regulate the governance of the board of directors, the meetings and the committees. It is the board’s and chairman’s job to monitor and evaluate a company’s performance.

Right to Hold Office of Profit

But all the directors cannot engage in the management of the company due to different reasons. For smooth running of the company they elect one person to manage all the affairs of the company. And the person can be a Manager or a Managing Director but not both at a time.

11.2 The term ‘material’ needs to be defined in terms of percentage. In view of the Committee, 10% or more of recipient’s consolidated gross revenue / receipts for the preceding year should form a material condition affecting independence. 11.3 For determining materiality of pecuniary relationship, transactions with an entity in which the director or his relatives hold more than 2% shareholding, should also be considered.

WHAT ARE THE FACTORS THAT SHOULD BE CONSIDERED WHEN DEMARCATING THE ROLE OF CHAIRMAN AND CEO?

They are more concerned with the overall running, strategies, and goals of the company. Managing Directors are always held responsible for any action of the company. On the other hand, the Chief Executive Officer does not have to shoulder these responsibilities. When discussing the differences, a Managing Director is responsible for the day-to-day business of a company while a Chief Executive Officer does not have huge responsibility for the day-to-day affairs of a firm. • The appointment of a Managing Director should be registered with Registrar of companies in the prescribed Form within 60 days of the appointment.

Represent the company in business negotiations with other suppliers, companies, customers, vendors and government officials. In case the Director hasn’t acquired the qualification shares within the stipulated time frame and such company goes into the liquidation after the expiry of this period, such Director would be called upon by Official liquidator for paying for such shares he was supposed to acquire. Usually, a director isn’t liable personally for any of the debt of a company until and unless fraud on part of the Director could be established. Alternate director refers to personnel appointed by the Board, to fill in for a director who might be absent from the country, for more than 3 months. As per the law, every company needs to appoint a director who has been in India and stayed for not less than 182 days in a previous calendar year. Directors are expected to perform their duties and obligations as rationally diligent persons with skill, knowledge, and experience as the person carrying out functions of a director and of that himself.

Disadvantages of Managing Director:-

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File form DIR-12 and MR-1 with ROC within 30 days of the passing of the resolution of appointment. Precautions have been taken by National Load Dispatch Center to upload the data/information and the uploaded data/information is believed to be accurate, reliable and complete. However, before relying on the information material, users are advised to ensure its accuracy, currency, completeness and relevance for their purposes, and, in this respect, NLDC shall not be responsible for any errors or omissions.

Every company should intimate the DIN of all the directors of the company to the Registrar of Companies. Directors are responsible for controlling, managing and directing the affairs of a company. Hence, a director plays several roles in a company, as an agent, as an employee, as an officer and as a trustee of the company. The whistle-blowers who report the misappropriation and mismanagement within the corporations would be limited in exercising their actions when these employees are connected to the individuals who cost the fraud and other abuse directly to the committee without reprisal would be threatening. When the Board is led by management, employees may be insecure in reporting such activities, and the audit committee may be less likely to act on such reports.

• There should also be a requirement of disclosure of directors background, education, training and qualifications, as well as relationships with managers and shareholders.
• In such examples, the private venture is regularly owned by a similar individual who is additionally the CEO and president.
• Even if law permit both, it is not practially possible to have both.
• Thus, the principle is quite clearly enunciated that a chairman is not, prima facie, liable for the offences committed by a company.

In Shamanur Shivashankarappa v. India Sugars and Refineries Ltd., the petitioner was a director of a sugar refining company which had allegedly violated procurement norms. The Karnataka High Court observed that a chairman being only authorised to preside over the board and the general meetings and would not be prima facie liable. However, it observed that if an MD or an Executive Director or the person who has been looking after the day today affairs of the company acts as a chairman, i.e. in a dual capacity, he ipso facto becomes liable for the offences committed by the company vicariously. Historically, some of the world’s most successful companies have had the Chairman of the Board and the Chief Executive Officer or Managing Director as the same individual, like American Express’ Kenneth I. Chenault, FedEx’s Frederick Wallace Smith, Exxon Mobil’s Rex W. Tillerson and Apple’s Steve Jobs. A Managing Director may be removed by the board of directors, while a Whole Time Director is appointed by the shareholders and can be removed by them. Further the independence of the audit committee is also of prime importance which gets enhanced when they report to the board and not the CEO.

If a company wants to appoint more than 15 directors, they can do so by passing a special resolution in the company. Every company should have at least one director who stays in India for a total period of not less than 182 days during the financial year. A company established in India cannot consist of all foreign directors. The lifting of the corporate veil refers to disregarding corporate personality and looking at the individuals who are controlling the company. In simple words, where a legal entity is used for dishonest and fraudulent purposes, the persons concerned cannot take shelter under the cloak of corporate personality.

• If the two roles are performed by the same person, then it’s an individual evaluating himself.
• The Companies Act, 2013 (‘Act’) defines a managing director as a director entrusted with substantial powers of managing the company affairs by virtue of either an agreement with the company, articles of association or a resolution passed in its general meeting or board of directors.
• They may have conflicts of interest, such as personal or financial ties to the company, which can compromise their ability to make objective decisions.
• This article endeavours to explain the meaning of the terms “Managing Director” and “Whole-Time Director”, their roles and responsibilities, provisions pertaining to them under the Companies Act, 2013 and based on the same, analyse the salient differences between the two roles.

Risk of reputational damage if the company faces negative publicity. Opportunities to network and build relationships with key industry leaders. Potential for personal and professional growth and development. Executive pay is decided by a corporate board, meaning a CEO who is also chair votes on their own compensation—a clear conflict of interest. Thank you for your interest in the Chicago Booth ADP – India.