The Unregulated CEOs: A Governance loophole.

In its recent judgement, the Hon: Supreme Court, in the case of Council of the Institute of Chartered Accountants of India Vs. Shri Guruvinder Singh & Anr , had held that the Chartered Accountant is guilty of a practice even though the said act was not in the Chartered Accountant’s professional capacity. The order of the Hon: Supreme Court highlights the importance of upholding the dignity and integrity by a professional even in his personal life.


The Governance of a Corporate is being carried out through the Board of Directors and Key Managerial Personnel(KMP). The Board of Directors are responsible for the overall supervision of the activities of the company on a macro level and their involvement is mostly restricted to taking of policy decisions and other statutory matters. Even though the overall responsibility of the management of the company is vested with the Board of Directors, the real steering holders of a Corporate are Key Managerial Personnel which includes a Chief Executive Officer, Managing Director, Company Secretary, the Whole Time Director and the Chief Financial Officer. They are the key persons who are implementing the board’s decision and doing the micro level management.



Of the above Key Managerial Personnel, a Managing Director and whole-time Director are part of the board of a company and they are subject to strict governance surveillance by Ministry of Corporate Affairs and other regulatory bodies such as SEBI, RBI etc. Moreover, they are directly answerable to the shareholders of the company and are accountable for all kind of deviations from the governance principles. In case of Public companies, the Managing Director is being appointed by the Shareholders for a period of 5 years and other directors are liable to retire on sequential manner. A Company Secretary who is a Key Managerial Personnel is governed by the Ministry of Corporate Affairs and are subject to disciplinary proceedings of Institute of Company Secretaries of India (ICSI) in case of any violations. A Chartered Accountant or Cost Accountant, who is appointed as a Chief Financial Officer is also governed by Ministry of Corporate Affairs as well as by Institute of Chartered Accountants of India (ICAI) and Institute of Cost Accountants (ICAI) respectively.


A Chief Executive officer is the head of a Corporate and he is directly reporting to the Board of Directors of the company. As the head of administration and operations, CEO is directly involved in the macro level as well as micro level management of a company. In many companies, the CEO is not holding any board positions and hence are not subject to direct supervision of the Ministry of Corporate Affairs. Unlike in case of a Company Secretary or a Chartered Accountant, who are professionally qualified, there is no professional body to supervise the activities of CEO. The Companies Act or any other legislation does not specify any time limit for a person to continue in the office of Chief Executive Officer and there are no specific qualifications prescribed for being a CEO. The unregulated CEO’s who are holding the office for unlimited period of time will develop good rapport with the Board of Directors and gain their confidence in long run. That may lead to misusing of the powers given to them and often end up in nepotism, misappropriation of funds and other corporate frauds.


Hence it is high time for the statutory authorities to regulate the office of Chief Executive Officer by prescribing the qualifications and time limit to remain in the office. This will bring more transparency and accountability to the said office and the corporate governance standards of the company will further improve.


BIJOY P PULIPRA

[The author is a Company Secretary and Insolvency Professional and can be contacted on bijoy@artismc.com




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