InvestorQ : Why has Hindustan Unilever gone ahead and separated chairman and MD post, when SEBI has already made this splitting mandatory?
ishika Banerjee made post

Why has Hindustan Unilever gone ahead and separated chairman and MD post, when SEBI has already made this splitting mandatory?

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3 months ago
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You are right that SEBI, due to low levels of compliance by the top companies, has put off the separation of the role of chairman and MD of the top 500 companies on the Nifty. Now this splitting of positions will be voluntary rather than mandatory. However, Hindustan Unilever (HUL) went ahead with the separation of roles anyways. HUL separated the positions of chairman of the board and the chief executive officer & managing director.

The deadline originally was April 2022, so HUL has done it before that deadline. HUL announced the appointment of Nitin Paranjape, COO, Unilever, as the non-executive chairman of the company. At the same time, the current CEO and MD, Sanjiv Mehta, will continue in that position. This split was intended to usher in a higher level of disclosure and corporate governance among Indian corporates, especially family run corporate houses.

The appointment of Nitin Paranjape was recommended by the Nominations & Remunerations Committee (NRC) of HUL and the same has already been accepted and approved by the HUL Board of Directors. The appointment is however contingent upon the final approval of the shareholders of the company. Hindustan Unilever will seek this approval from shareholders separately as per the guidelines of SEBI.

SEBI had earlier asked all listed entities above a certain turnover threshold to split the roles of chairperson and MD by April 2022. The original deadline was supposed to be April 2020 but had to be postponed due to disruption in routine economic activity caused by COVID-19. The separation of roles was among the series of recommendations made by the Uday Kotak Committee on corporate governance, which had been appointed by SEBI.

Most Indian businesses are family run and there is normally no distinction between the roles of chairman and MD. Most family businesses and even the lobbying industry bodies objected on the grounds of practical difficulties. With just 55% companies compliant, SEBI decided to put off the idea for now. However, many companies have come forwards and done this separation of roles voluntarily. This is likely to be value accretive in long run.

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