Institutional investors fighting to dissolve the company board or remove the Managing Director through a general body meeting should suggest a widely acceptable alternative before unsettling a company with its decision.
M Damodaran, former Chairman, SEBI, UTI and IDBI and Chairperson, Excellence Enablers, told BusinessLine that institutional shareholders must recognise that the interest of the company is paramount. Any move, however well-intentioned, should not be disruptive and should not stand in the way of business being done by the company, he said.
A listed entity requires a properly constituted Board of Directors and therefore destabilising the Board, without alternatives being conceived and put in place, is hardly the answer to any developing situation of dissatisfaction, he added.
Lack of confidence
The concern of institutional shareholders is largely lack of confidence in the promoter and the Boards. This is sorted out by seeking a General Meeting to throw out some Board members or the entire Board of Directors. The resolution being made to the National Company Law Tribunal should also include a request to appoint a provisional Board till replacements are in place, through the prescribed processes, said Damodaran.
Of late, the tussle between corporates and institutional investors has intensified, particularly over unreasonable salary hike for promoters besides some vital corporate decision.
Institutional investor Invesco is fighting a pitched Court battle to remove Zee Entertainment Enterprises Managing Director Punit Goenka.
Corporate disputes do not happen overnight. It could be that some moves being made by the institutional shareholders did not fructify, and hence gave rise to dissatisfaction with the promoters and the Board. Promoters and Boards need to take into account the legitimate concerns of shareholders, large or small, in regard to Corporate Governance and also the manner in which business is being conducted, said Damodaran.
A constructive conversation between the two sets of stakeholders can minimise the conflict, even if it is not completely addressed. Every such case proves the point that when effective communication is absent, doubts, discords and disputes will develop and will destroy the corporate entity, he said.
Good corporate governance involves strengthening of corporate entities and ensuring that their business practices are built on the pillars of transparency, disclosure and stakeholder interest, he added.