Yes Bank, IL&FS, DHFL, Jet Airways, the ADAG group, Zee, PTC India, and many others before and after that—the list of promoters of Indian companies accused of corporate governance lapses is just getting longer. Many Indian companies seem to be united in inadequate board-level supervision and the nexus between promoters, auditors, rating agencies, and others. The latest to join that list is Dish TV, though the promoters have strongly and predictably denied any wrongdoing. On Tuesday, a group of minority investors of the company demanded a probe into the alleged diversion of funds from Dish Infra Services, a subsidiary of Dish TV, to Zee Entertainment Enterprises. This was part of the series of transactions that led the market regulator to bar Subhash Chandra and Punit Goenka from holding any board positions at any listed company. The battle between Dish TV’s minority investors and promoters has been a long-drawn one, and the matter must be taken to its logical end.
But the issue is not about Dish TV alone. Corporate governance is one of the most neglected corners in the overarching framework of ethics and transparency across many companies, and it’s the minority shareholders who pay most dearly for this lapse. Though there have been many reforms over the years to improve governance, the stranglehold of promoters over listed companies continues to remain a big stumbling block. For example, according to an April report published by Excellence Enablers, a governance firm owned by former Sebi chairman M Damodaran, several leading listed companies are yet to separate the posts of chairperson and managing director. Per data, 66 companies had separate chairpersons and MDs in FY22, while 34 companies did not have such a separation of power. It is unfortunate that this is not mandatory.
Though there are notable exceptions (the CG Power board ousted Gautam Thapar for alleged fraudulent activities; more recently, PTC India saw four of its six non-executive independent directors resign from the board raising concerns over governance issues and the “cavalier attitude” of the management towards independent directors) and some company boards do provide strategic guidance, the role of a large number of independent directors has come under the scanner due to their inclination to remain mute spectators even as errant promoters unabashedly flout norms and guidelines. Many such directors feel that their job is to play only a cameo role. Nearly a third of the top 100 companies have permanent board seats, a setup that the market regulator plans to eliminate. Under the proposed norms, companies will have to get the shareholders’ nod at least once in five years for each board seat. The policy change is designed to address concerns about promoters retaining control even after losing their dominant shareholding.
Another matter of concern is succession planning in promoter-driven companies, leading Cyril Shroff, managing partner, Cyril Amarchand Mangaldas to famously say that “succession is very often not decided in the boardroom but in the living room.” There are examples galore of even the founder-promoters of new-age companies giving a miss to basic governance measures. Proxy agencies are also pushing for greater transparency in audit quality. In 2022, only 23% of the boards provided information about the independence, competence, and experience of the statutory auditors. This disclosure’s significance comes in the light of the recent battle between Adani group and US-based short seller Hindenburg, where the contention was that it had a signing partner with no significant experience.