India?s largest private independent power producer, Lanco Infratech has adopted a family constitution barring any practising politician or anyone holding a political office from its management and board of directors. The rule, which will also apply to family members, goes beyond the separation of ownership and management at many family-run enterprises.
There are some leading Indian companies where the promoter or chairman is a member of the Rajya Sabha. Some companies have an unwritten norm to bar politicians from the boardroom; however, Lanco is the first to lay down such a rule. Besides power, the R8,200-crore Lanco has interests in infrastructure, construction and EPC sectors. The company, which operates in 20 states, has an installed power capacity of around 3,292 MW.
A Lanco official told FE that the constitution, which is yet to be made public, also bars wards of promoters from directly joining the senior management or the board. ?We have clearly laid down that even family members would have to rise from the starting ranks and make their way upwards through performance,? the official said.
When contacted, the company declined to make an official comment.
In fact, the company?s move to bar politics from the company?s board has an interesting history. In 2002, when Lanco founder chairman L Rajagopal Rao decided to take an active interest in politics, he stepped down from the post and his younger brother L Madhusudan Rao took charge, who is still the company?s chairman. The company already follows some good corporate governance practices: Excluding the CEO, all other board members are independent directors. Board committees addressing aspects relating to compensation, audit, and corporate governance comprise solely of independent directors.
Welcoming the step, Rajesh Chakrabarti, professor at Indian School of Business, Hyedrabad, said: ?The move is positive since it aims to break the politics-industry nexus by bringing in more transparency. Overall, such a nexus cannot be totally done away with, but with steps like this, it surely can be reduced,? he said.
The second aspect of Lanco?s constitution relating to the career growth path of wards of promoter families may not be that novel since several others too follow the practice. However, Lanco has gone a step ahead in codifying the norm. ?By explicitly stating such a norm, the company has made the entire thing process-driven, which is a welcome move,? added Chakrabarti.
Analysts said that children of promoter families do have a faster career growth even if they move through the ranks; however, the good part is that the process makes them learn the ropes of business much better and comes in handy when they finally join the managerial team.