THE EXCHANGE. Sour grapes and remedies

We’ve seen some sour grapes and unique remedies in corporate India this year. It is not for me to comment on or analyse merits and real motivations. I offer a distant and detached view with an eye to the process, and any broad-based implications for the future.

It became pertinent for me due to an interest in corporate law and governance issues to examine the robustness of processes applied vis-à-vis law/regulations and propriety, after global publications applied unflattering terms (not for the first time) like “India’s penchant for treating corporate founders as latter-day maharajahs”, and “the tide has begun to turn against promoters ... founding shareholders can be a resource for a company, but only if they know their place — in the boardroom, perhaps, but not on a pedestal”.

Ascribing negative generic imageries serves no genuine purpose.

Indian founders generally do as good a job as others around the globe. But it is now well recognised that systemic angst against one delinquency can lead to real problems for many compliant entrepreneurs. Poor perception every so often rules over sound fact.

Some key issues for a litmus test are (a) voting powers of the triggering persons and those acting in concert; (b) how and where must this strength be tested; (c) whether the minority view can override without testing the majority view much of the time; and (d) the onus on both minority and majority to respect wider stakeholder interests when invoking their explicit or implicit power.

The proper forum for exercise of a director’s vote is a board meeting; the proper setting for a shareholder’s vote is a general meeting (AGM or EGM). Where necessary, one director may call for an out-of-turn board meeting and a minimum collective number of shareholders can call for an extraordinary general meeting if required. Both of these must have specific agenda items. Other than these instances, a decision or show of strength can be deemed ultra-vires . Just as the only place to prove strength in a legislative assembly is the floor of the house, and the only place for a citizen’s vote to be counted is a voting booth.

Earlier during the year we saw high-powered chairmen and boards being changed. To the best of my observation, no matter how matters appeared the morning after, these changes were made at board meetings with the full participation of independent directors. The removal of relevant directors — where this has happened — was only via votes in general meetings. The triggering parties have invariably been material stakeholders or owners.

There is much value in a robust process, irrespective of what one feels about the outcome. Of course, it is a different matter that, in keeping with an intrusive ethos, a review on independent directors has been commissioned. The company law introduction of independent directors and their selection, powers and responsibilities was intensively deliberated. A review coming so soon after probably conveys a signal to the world that things are not fully thought through ab-initio .

More recent high-profile changes have taken place following much media hullaballoo, posturing, and possible behind-the-scene moves. It intrigues me that the board was not requisitioned to discuss and resolve issues, nor was a general meeting called to effect the changes that happened. We had lots of comments from activists, but very few calls (none?) to adhere to due process.

Knee-jerks abounded as far as one relying only on public domain information could surmise. Even days after material changes were made, there are lone voices that rush to the media with their views on the removal of some more directors — could it be a kind of name and shame process?

All in all, it is astounding what could be achieved by members with no legal accountability without invoking due process or even their limited legal rights, or allowing material stakeholders to participate. More importantly whether the company emerges rescued or strengthened will only be known much later; until then it’s all conjecture and intention.

Of course any director is free to resign at any time, which is what people probably did technically. The board can induct directors and elect a chairman, which it also promptly seems to have done. Minimum legal standards were achieved.

But whether precipitating deep changes in a major corporation without rigorous due process is a good or acceptable idea is now a matter for debate. It seems obvious that a “traditional business house or promoter” doing the same thing would be taken to task more firmly.

Also, as per law, persons “in accordance with whose directions or instructions the Board of Directors or any one or more of the Directors is or are accustomed to act” can be deemed to be director of a company including becoming an “officer in default”. Whether the influences exerted outside due process can trigger the above, thereby casting governance obligations on individuals in question as well as the company, may remain to be tested.

The objective here is to argue that there are lessons for the larger Indian business constituency. It is most unlikely that the noise will subside soon or that some other episodes will not occur. So, I believe it is valuable for all board members as well as entrepreneurs/promoters to analyse these issues in depth, and visualise or prepare for changes and intrusions these may generate.

Enterprises held out as paragons of virtue, trust and governance could also be portrayed in ugly or undeserved light in media noise, and be exposed to great reputational risk. Therefore we must advocate and ensure integrity of processes within the ecosystem of enterprises and maturity in the larger economy, so that wheat is not confused with chaff.

I believe that the Indian corporate sector is better managed than either perceived or alleged. Yet, as an intelligent author suggested, it is important to swim with the sharks without being eaten. To paraphrase, a few pounds of planning are better than an ounce of grief.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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