Issues in separating Chairman and CEO/MD roles in Family Firms: Evidence from India’s SEBI reform

Abstract

This paper analyzes the issues of implementing the new corporate governance code Securities and Exchange Board of India (SEBI), which is Contract agreement reforms (Clause 49) enacted in 2018.This code has ordered Indian companies to separate the role of chairman and chief executive officer (CEO)/managing director(MD)in family firms. Not only that more severe penalties were introduced in 2020 to expand the efficacy of this enactment, the SEBI had also recommended certain companies, in the new contract agreement reform, to implement it by October 01, 2019.There exist many problems on implementation of this reform in India. The separation between the position of Chairman and CEO/MD, which may lead to more independent boards, will provide the essential checks and balances over management’s performances. But, in most Indian promoter-led companies, the posts of chairman and CEO/MD are interwoven. The promoters say that the committee did not recommend that the two posts be separated, and hope the order gets deferred for 2-3 years.A qualitative research analysis is conducted focusing on the implications of this reform on family businesses and their managing boards. Hence, this paper will analyze the present conditions, trends, and future challenges from a theoretical as well as practical perspective. Keywords:Family firms, corporate governance reforms, separated Chairman and CEO/MD, SEBI, India.