How Hindustan Unilever separate post of Chairman and MD

Even as the regulator has put off the separation of the role of chairman and MD of the top 500 companies on the Nifty, Hindustan Unilever (HUL) has gone ahead and done the separation. In fact, HUL has officially separated the positions of chairman of the board and the chief executive officer & managing director (CEO & MD). This change will be effective March 31st and is considered to be a positive and affirmative step for better governance.

SEBI had announced just a couple of weeks back that the decision to separate the post of chairman and MD of the large companies would be optional and left to the discretion of the company. However, HUL has gone ahead and implemented the separation of roles ahead of the 01st April deadline. HUL announced the appointment of Nitin Paranjape, COO, Unilever, as the non-executive chairman of the company. Sanjiv Mehta will continue as CEO and MD.

The appointment of Nitin Paranjape was recommended by the Nominations & Remunerations Committee (NRC) of HUL and the same was accepted and approved by the Board of Directors of Hindustan Unilever. The appointment is still subject to the final approval of the shareholders of the company, which Hindustan Unilever plans to seek in accordance with and in compliance of the extant regulations.

Nitin Paranjape will now take on a new role as chief transformation officer and chief people officer and Unilever. At Unilever, he would be responsible for leading the business transformation and heading the HR function, effective from 2022. The current MD and CEO, Sanjiv Mehta also welcomed Nitin Paranjape and was confident that his huge knowledge and experience would enrich the deliberations and add tremendous value to the board.

It may be recollected that. earlier, SEBI had asked listed entities to split the roles of chairperson and MD by the April 2022 deadline. In fact, the original deadline for this shift was April 2020 but had to be postponed due to the lag effect of COVID-19. These norms were part of the series of recommendations given by the Uday Kotak Committee on corporate governance, appointed by SEBI.

One of the big challenges in countries like India is that most businesses are still family businesses and in such cases there is no distinction between the roles of chairman and MD. With the idea of introducing more professionalism, this change was suggested. However, most business houses as well as industry bodies had objected to this move and pointed out practical difficulties, leading to the move being eventually put off.

However, it is not that all companies have been unable to comply. According to the last count put out by SEBI, nearly 55% of the top 500 companies had already adhere to the new norms  of separating the post of MD and chairman. Eventually, companies are likely to see value in doing this voluntarily, so it is perhaps best left like that. If history is any guide, the companies with the best corporate governance also get the best valuation metrics.