Proxy advisory firm InGovern Research Services has raised corporate governance issues at Hikal, a firm embroiled in a bitter promoter battle, with it calling for a board overhaul and roping in a new professional CEO.

On March 18, Hikal promoters — Jaidev Hiremath and his wife Sugandha — had filed a case against industrialist Baba Kalyani and Kalyani Group companies (BNK Group), seeking a ‘performance obligation’ as per a family arrangement and transfer of Hikal shares in favour of the Hiremath family. The case is yet to come up for hearing before the Bombay High Court. Hikal, incorporated in 1988, is a pharmaceutical and chemicals company.

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Jai Hiremath serves as the executive chairman of the company, Sameer Hiremath is its MD and Sugandha Hiremath, Baba Kalyani and Amit Kalyani are non-executive, non-independent directors. Sugandha Hiremath is Baba Kalyani’s sister.

According to InGovern, the battle between two promoter groups threatens to impact the company and its corporate performance. This is due to a sibling rivalry and lack of proper wealth sharing plans, with the minority shareholders caught in the middle.

There is a three-way split of shareholding, with the Hiremath family owning 34.84%, the BNK group holding 34.01% and the minority public shareholders holding 31.15%. In the absence of an agreement between the two warring promoter groups, the above proportion of shareholding makes it difficult for any special resolution to be passed. This is also likely to slow down decision-making and resultantly, the interest of the company is likely to be “compromised”, InGovern said in a note to shareholders.

Given the promoter battle and three-way split of shareholding, the fate of the company and about 75,000 minority shareholders of Hikal hangs in balance, it added.

Of the five promoter-directors, three belong to the Hiremath family and two to the BNK group. Further, two independent directors cannot be termed independent as they have been on the company’s board for more than 20 years.

According to InGovern, the board has been ineffective and “badly needs an overhaul” with many independent directors serving for long tenures and ageing. With the promoter battle consuming bandwidth of many of the directors, there is a need for separation of management and ownership, and a new professional MD or CEO should be brought in to run the company.

The current management has not contributed to corporate sales and profitability growth, largely due to the corporate governance issues. The ongoing dispute between the promoters had led to institutional shareholders staying away from making fresh exposure to the stock. As of March 31, 2023, Institutional Investors own only 6.74% shares of the company, InGovern said.03

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Further, the remuneration of promoter Executive Directors is not commensurate with the company’s financial and operational performance, it said, adding their remuneration rose by over 20% in FY22.