Senior Management: A list too dynamic to remain static?

Identification as such attracts obligations and information 

– Pammy Jaiswal and Mahak Agarwal

[Updated as on 27th March, 2025]

Contents of the article:

Introduction

Meaning of Senior Management under the Act, 2013

Meaning of SMPs under the Listing Regulations

Understanding the implications

– On SM Personnel

– On listed companies

Evolution of the definition of SMPs

Conclusion

Introduction

A senior management (SM/ SMPs) in a company means that their association as well as disassociation with the company can create a lot of impact in the operations as well as external outlook of the company. Besides this, there are several legal requirements that applies to the recruitment, pay scale and other aspects of the senior management. Further, especially for a listed company several obligations are imposed on the senior management like affirming with the code of conduct, disclosure of material financial transactions, responding to market rumors, etc. Hence, it becomes imperative for a company to categorize its officials as senior management after due consideration.

While considering, the company will also be required to refer to the definition of senior management under the applicable laws, most commonly, the Companies Act, 2013 (Act, 2013) as well as the SEBI Listing Regulations (Listing Regulations).

Further, SEBI LODR (Second Amendment) Regulations, 2023^[1] introduced several new information requirements and obligations pertaining to SMPs. The same has given rise to the need of relooking at the said position from a fresh perspective.

Given the fact that the amendments specify new and stricter obligations and disclosure norms for SMPs, it becomes imperative for companies to look back and revisit on the following fronts:

• Who all are currently designated as SMPs? and
• Identifying, with a new perspective, the persons who shall explicitly fall under this definition

and accordingly, attract the applicability of various requirement as discussed hereinbelow.

Our detailed FAQs on the LODR (2nd Amendment) Regulations, 2023 can be viewed here.

This write up discusses major aspects with respect to SMPs, the first being the comparison of the definition of SMPs under the Companies Act, 2013 and the Listing Regulations, then the meaning of core management team and its relevance in drawing up the list of SMPs in a company, major implications on the company and the SMP under applicable laws and evolution of the definition over time.

Meaning of Senior Management under the Act, 2013

The scope of law revolving around ‘Senior Management’ under the Act, 2013 is limited. It discusses the meaning of and the manner of appointment and removal of SMPs.

Meaning

The meaning of the term ‘Senior Management’ under the Act, 2013 provides to mean personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive Directors, including the functional heads.

Appointment, Removal and Remuneration of SMPs

Section 178 of the Act, 2013 requires the NRC to be responsible for identifying persons who may be appointed in senior management and are also required to recommend to the Board their appointment or removal. Further, the law also provides emphasis on formulation of requisite criteria for ensuring balance between fixed and incentive pay w.r.t the remuneration payable to SMPs.

Meaning of SMPs under the Listing Regulations

The present definition of senior management has been given under Regulation 16 of SEBI LODR, which reads as under:

“Senior  management”  shall  mean  the  officers  and  personnel  of  the  listed  entity  who  are  members  of  its  core  management  team,  excluding the Board  of  Directors,  and  shall also comprise all the members of  the  management  one  level  below  the  Chief    Executive    Officer  or  Managing    Director  or  Whole-Time  Director or Manager (including  Chief  Executive  Officer and Manager,  in  case  they  are  not  part  of  the Board of Directors)  and  shall  specifically  include the functional heads, by whatever name called and the persons identified and designated as key managerial personnel, other than the board of directors, by the listed entity ”

Accordingly, following are the inclusions and exclusions in the definition:

Inclusions:

1. Members of core management team
2. All members of the management one level below the CEO or MD or WT or Manager
3. CEO, Manager (in case not part of BOD)
4. Specifically include Functional heads
5. persons identified and designated as KMP

Exclusions:

• Board of Directors

On reading of the aforesaid definition of SM personnel, it is understood that the same is an inclusive definition and therefore, the actual identification of SM in a company will depend on the on several factors, like the meaning and participants of core management team, members falling under one level below the board, organizational hierarchy, etc. For defining the offices falling under ‘core management team’ one may consider the members of the promoter group taking part in the crucial management discussions, in case there is a formal committee/ group to that effect. As regards, the members falling under ‘one level below the board’ is concerned, the ones who report to the MD/ CEO who are responsible for general management of the company would be regarded as an inclusion in the said category.

Comparative analysis between the Act, 2013 and the Listing Regulations

Act, 2013 (Explanation to section 178)

Listing Regulations [Reg 16(1) (d)]

‘‘senior management’’ means personnel of the company who are members of its core management team excluding Board of Directors comprising all members of management one level below the executive directors, including the functional heads.

“senior management” shall mean the officers and personnel of the listed entity who are members of its core management team, excluding the Board of Directors, and shall also comprise all the members of the management one level below the Chief Executive Officer or Managing Director or Whole Time Director or Manager (including Chief Executive Officer and Manager, in case they are not part of the Board of Directors) and shall specifically include the functional heads, by whatever name called and the persons identified and designated as key managerial personnel, other  than the board of directors, by the listed entity

On a combined reading of the above definitions, it is observed that identifying the core management team is a must for a company which in turn shall be linked with those officials who are either the functional heads or one level below the CEO/MD/ WTD /Manager as well as those who are identified and designated as a KMP in a company. While the definition under the Act, 2013 may give an indication that all members who are one level below the executive directors irrespective of being part of core management or not will be considered as an SMP, however, one has to read the two definitions in a harmonious construction which takes out the scope of any differences between the two even though there are differences in the language.

Understanding ‘Core Management’ and ‘functional heads’

Generally speaking, core management would mean members of the management responsible for core business functions of the organization.

Core Management

To further understand who shall fall under the ambit of core management, reference may be taken from Singapore Guidelines on Individual Accountability and Conduct applicable to Financial Institutions (regulated by Monetary Authority of Singapore (MAS)) which provides a list of persons to be included in ‘core management functions’^[2]. The list includes CEO, CFO, Chief Risk Officer, Chief Operating Officer/Head of Operations, Chief Information Officer/Chief Technology Officer/Head of Information Technology, Chief Information Security Officer/Head of Information Security, Chief Data officer, Chief Regulatory officer, heads of business functions, head of actuarial/appointed actuary/certifying actuary, Head of HR, Head of Compliance, Head of Financial Crime Prevention, Head of Internal Audit.

Similarly, the Ministry of Economic, Trade and Industry (METI), Japan in its revised CGS Guidelines has laid emphasis on the composition and delegation of powers to ‘top management^[3]’. It provides an indication on the nature of work done and the members falling under the said category which includes president, CFO, CXO, etc.

Defining a core management team is both the prerogative as well as the domain of a company and the same will differ from one to another. It will therefore be significant for companies to identify its core management team as the same will decide the list of SMPs.

Functional head

^[4]Business functions are the activities carried out by an enterprise; they can be divided into core functions and support functions. Core business functions would mean those functions which yield income for an enterprise and these functions generally make up the primary activities of the enterprise. These would normally include Operations, Marketing, Finance, Compliance and could otherwise vary based on the nature of the enterprise. ^[5]Support business functions are ancillary (supporting) activities carried out by the enterprise in order to permit or to facilitate the core business functions, its production activity. These activities may include distribution and logistics, IT services, technical services, etc.

However, in the context of defining SMPs, what shall be relevant are the heads of the core functional departments of the company who report directly to the MD or WTD while the ancillary or supporting heads shall be disregarded while interpreting the definition of SM.

On the joint reading of the aforesaid discussion on core management as well as functional head, it becomes clear that senior persons from ancillary or support services are less likely to form part of the core management, and hence, would fall outside the purview of SMP.

Illustrations to understand core management team and functional heads

Illustration 1 – For a large-scale organization, the identification becomes even more crucial since a liberal interpretation of the meaning would involve number of employees under the said definition and thus, lead to several implications as discussed below. To understand the same, if we consider an example of K Ltd which has several plant locations around the country with plant heads controlling the functions at each plant. All the plant heads report to the head of operations as well as the CFO. Further, the said company has around 15 functional departments, out of which 12 are main line functions and the rest are ancillary to one of the main functions. Every main line function has a functional head and the ancillary functions have controllers reporting to the one of the functional head of the main line function. The heads of the main line functions report to the MD of K Ltd.

In the given case, if we take a close look at the definition of SM, then the following should be the result of the identification of SMs in K Ltd:

• Plant heads – Not an SM since they report to Head of operations, therefore, not falling under one level below the board.
• Heads of main line functions – Should be categorized as an SM since they fall under one level below the board and part of core management team.
• Controllers of ancillary functions – Not an SM since they report to head of main line functions

Illustration 2 – In a listed company X Ltd, the reporting is such that besides the Managing Director to whom some of the functional heads report, there are several other functional heads who report to the WTDs in the company given the fact that the respective WTDs oversee those functions. Additionally, few officers in the Company have been designated as a KMP other than the CS and the CFO who also are heading some of the core functions in the said Company.

In the given case, if we take a close look at the definition of SMP, then the following should be the result of the identification of SMPs in X Ltd:

• Functional heads reporting to WTDs – Given the intent of the definition of SMP, it is clear that one level below the WTD is also part of SMP. In this case, we need to understand that when it comes to reporting to the general management, considering only the MD in that case should not be sufficient where the company has WTDs as well. Also, it is also likely that to distribute the supervisory powers effectively, the MD and the WTDs may have kept a hierarchy where for some functions, MD oversees and for other functions, the WTDs oversee. Hence, in this case, not considering these functional heads as part of SMP would not be correct
• Functional heads reporting to MD – Forms part of SMP
• Officers designated as KMP – Forms part of SMP
• CS and CFO – Forms part of SMP

Understanding the implications

 On SM personnel

The amended regulations along with the existing regulations applicable to SMs impose the following obligations on them:

1. SM are required to act with operational transparency while also maintaining confidentiality of information [Regulation 4(2)(f)]
2. They are required to disclose to the board, all material, commercial and financial transactions in which they have personal interest and which may lead to potential conflict of interest with the listed entity at large [Regulation 26(5)]. Here, conflict of interest relates to:
3. Dealing in shares of listed entity
4. Commercial dealings with bodies, which have shareholding of management and their relatives
5. SPs shall also be required to affirm compliance with code of conduct of senior management on an annual basis [Regulation 26(3)]

On listed companies

1. Succession Planning [Reg 17(4)]

The board of directors of the listed entity shall satisfy itself that plans are in place for orderly succession for appointment to the board of directors and senior management.

2. Appointment, removal and remuneration of SMPs [Reg 19 read with Schedule II]

The NRC is required to identifying persons who are qualified to be appointed in senior management in accordance with the criteria laid down, and recommend to the board of directors their appointment and removal. Further, NRC is also required to recommend to the board, all remuneration, in whatever form, payable to senior management.

3. Role of SMP to respond to market rumours Reg 30 (11A)

Besides the promoter, director, KMP, the SMP of a listed entity shall provide adequate, accurate and timely response to queries raised or explanation sought by the listed entity in order to ensure compliance with the requirements for either denying, accepting or clarifying a market rumour and the listed entity shall disseminate the response received from such individual(s) promptly to the stock exchanges.

4. Fraud by SM [Clause 6 of Para A of Part A of Sch III]

The definition and implications of being identified as an SM under the amended regulations is very wide and it is therefore, likely that the companies may not consider covering several persons under its ambit. Fraud with respect to SM has been inclusively defined to also mean fraud under Regulation 2(1)(c) of Securities and  Exchange  Board  of  India  (Prohibition  of  Fraudulent  and  Unfair  Trade Practices relating to Securities Market) Regulations, 2003 which itself has a very wide scope. The same covers wide range of activities including misrepresentation of truth, concealment of material facts, a suggestion as to an untrue fact, active concealment of fact in knowledge of the person making such representation, promise made without intention of performing it, reckless/careless representation, any act or omission which law declares as fraudulent, deceptive behavior, false statement, misinformation about securities that affects market price of such securities.

Having said that, companies which take a liberal interpretation of the definition of SM and accordingly, keep a long list of such persons, might have to keep constant track of such activities being undertaken by their SM which, goes without stating, is a cumbersome task.

Furthermore, such cases of fraud have been classified as deemed material event under Reg 30 read with Para A Part A of Schedule III, which will have to be reported by the company to the stock exchange within 12 or 24 hours, as the case may be.

5. Default by SM [Clause 6 of Para A of Part A of Sch III]

The meaning of ‘default’ with regard to SM shall be seen in the following light:

• non-payment of the interest or principal amount in full on the date when the debt has become due and payable; and
• such default which hasimpact on the listed entity

Further, such defaults by SM, pursuant to the recent amendments, shall be considered a deemed material event and accordingly required to be disclosed to the stock exchange within 12 hours of such default coming into notice.

6. Change in SM [Clause 7 of Para A of Part A of Sch III]

Pursuant to recent amendments, change in SM shall now be a deemed material event under Reg 30 read with Para A Part A of Schedule III. In addition, the particulars of SM along with changes therein since the close of the previous financial year shall also be required to be disclosed by the company in its Corporate Governance Report.

7. Resignation of SM [Clause 7C of Para A of Part A of Sch III]

The amended Listing Regulations require companies to disclose to the SE, the letter of resignation as given by the concerned SM along with detailed reasons for such resignation within seven days from the date such resignation comes into effect.

Such resignation letters carry a grave potential for the outgoing SM to negatively portray the image of the company. Accordingly, identification of SM personnel becomes of immense relevance. Further, in terms of the Industry Standards Note issued in consultation with SEBI on 25^th February, 2025, it clarifies that in cases of resignation, the phrase “resignation comes into effect” as used in Para A(7C) shall mean the last date of the concerned person in the listed entity, and the timelines for disclosure as per Para A(7C) shall be calculated accordingly. For instance, if Ms. X is an SMP in a listed entity, who submits her resignation letter on January 1, 2024, the management of the listed entity accepts the resignation on January 31, 2024 and her last date in the listed entity is February 28, 2024, the listed entity will be required to make the disclosure of her resignation on or prior to February 29, 2024 (i.e. within 24 hours of such resignation coming into effect) as per Para A(7C)

8. Announcement/Communication through social media intermediaries or mainstream media by SM [Clause 18 of Para A of Part A of Sch III]

It is stated by via the recent amendments that if the SMPs of the LE make any announcement or communication through social media intermediaries or mainstream media and such information is material in terms of Regulation 30 and is not already made available in the public domain by the listed entity, the same shall be deemed to be a material event under Para A Part A of Schedule III and consequently required to be disclosed to the SE.

9. Disclosure relating to SMPs under Para A (19) and (20) of Part A of Schedule III in connection with actions initiated or taken

Under the said clauses, if the same is on the SMP and as clarified by the ISN that it is in relation to the listed entity will be required to be disclosed if it has an impact on operations, financial position or reputation of the listed entity.

Evolution of the definition of SMPs

The concept of Senior Management (herein, ‘SM’, and senior management person or personnel are referred to as ‘SMP’ or ‘SMPs’) was not there under the regime of the Companies Act, 1956 and was first introduced under Section 178 of the Companies Act, 2013 (Act, 2013). The introduction was a result of several rounds of discussion under the report of the 21^st Standing Committee on Finance on the Companies Bill, 2009 as well as the JJ Irani Committee in 2005 as also the Narayana Murthy Committee in 2003. The current law requires the Nomination and Remuneration Committee (‘NRC’) to identify and recommend to the board, the individuals who can be appointed as SMP along with their remuneration.  The definition under the SEBI Listing Regulations (‘Listing Regulations’) has, over time, been aligned with that under the Act, 2013. These definitions have been around for more than decade, and have seen improvisation over time.

If we discuss about the improvisations, it will be interesting to refer to the trajectory below:

Evolution of SMP Definition📍 2003 – Narayan Murthy Committee ➡ Defined SMP as core management. ➡ Included all members of management one level below the board.📍 2005 – JJ Irani Committee ➡ Expanded the definition to include functional heads.📍 2009 – 21st Standing Committee Report ➡ Proposed aligning the definition with the JJ Irani Report.📍 2013 – Companies Act , 2013 ➡ The definition of SMP became legally effective.📍 2017 – Kotak Committee Report on Corporate Governance➡ The definition of SMP was clarified to include all members one level below the CEO/MD/ WTD/ manager and specially include CS and CFO.

As evident from the aforesaid figure, the definition of SMP has been in discussions and has also been subject to variations over time. This is more so because of the relevance of this position in a company whether it is to have strong management lineup in a company or involvement in sharing of key strategic issues and solutions, SMPs have a significant role to play in a company.

We can also refer to the evolution of the definition as per the figure given below:

To explain it further, the definition of SMP was amended several times starting from the SEBI LODR (Amendment) 2018 effective from 1^st April, 2019 followed by the SEBI LODR (Amendment) Regulations, 2023 effective from 17^th January, 2023 and recently pursuant to the SEBI LODR (Third Amendment) Regulations, 2024 effective from 12^th December, 2024, post which the amended definition of SMP stands today.

Conclusion

In essence, the existing Listing Regulations deal with several provisions revolving around SMP, imposing several disclosure norms on the company and on the SM as well. Considering these disclosures include some very sensitive areas, an immediate step for companies now will be to take a close re-look and identify the personnel that fall in this comprehensive definition in such a manner that enhanced compliances in relation to such personnel, as brought about by the recent amendments are being adequately adhered to without any adverse implications on the listed entity.

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^[1] SEBI LODR (Second Amendment) Regulations, 2023

^[2] Guidelines on Individual Accountability and Conduct issued by Monetary Authority of Singapore

^[3] Revised CGS Guidelines by METI, Japan

^[4] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Business_functions#:~:text=Business%20functions%20are%20the%20activities,market%20or%20for%20third%20parties

^[5] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Business_functions#:~:text=Business%20functions%20are%20the%20activities,market%20or%20for%20third%20parties

See our other resources:

Youtube video on Senior Management Personnel

Perched at the Peak: Compliance Officer as CXO

FAQs on LODR (Second Amendment) Regulations, 2023