Boardroom Battles in Indian Companies

Published by MBA Skool Team, Published on December 18, 2017

The recent tough boardroom battle at the helm of Tata’s and Infosys adds to the list of yet another Boardroom fights in Indian corporates. Boardroom spats is nothing new and have been impacting corporate governance since decades. However, much of attention is received off late due to penetration of media at lowest level. Perhaps, most common reasons for boardroom spat is the difference in the views of founder and management of the company. Too much interference of the founders hinders the growth of a professionally run company.

Image: pixabay

Some of the other fierce boardroom battles in history of Indian corporates includes:

• Ratan Tata vs The Tata satraps: Ratan Tata took on satraps, Russi Mody, Darbari Seth and Ajit Kerkar, who considered the organizations as their personal fiefdoms. He insisted the group’s forgotten retirement policy, that directors above the age of 75 would have to resign from Tata boards, be followed. Russi Mody, CMD of Tata Steel and Darbari Seth of Tata Chemicals and Tata Tea, had to resign. Ajit Kerkar, chairman of Taj Group of Hotels was ousted on FERA violations.

• L&T vs RIL: During 1980's when then chairman of L&T N.M. Desai discovered that Manu Chhabria, owner of Jumbo group, had plans of launching a hostile bid, he got Dhirubhai Ambani to invest in companies shares. Ambani, backed by congress party, continued to buy more stakes and soon became the chairman of the group. However, his plan was thwarted when Congress lost power in 1989. Later, RIL sold its stake to Aditya Birla Group.

During the recent board row at Infosys, R Seshasayee, chairman of the board said: “Part of the change is to move from a promoter run company to a professional run and managed company and it is a challenging transition. It is a challenge we have to meet with a great degree of statesmanship and deliver it. And we will do it. If we haven’t succeeded this time, then we will do it next time.”

The failure of corporate governance in the large organizations results due to lack of transparency and accountability, ownership and control, as well as poor management integrity. The credibility and vitality of the business suffers. The Investor brand equity takes a toll during boardroom row. However, customer brand equity has a temporary impact. The recent tiff in Infosys and Tata’s resulted in shrink of share prices signaling the loss of confidence of investors. Post removal of Cyrus Mistry as the chairman of Tata Sons, the shares of major Tata Group companies swayed between 8 per cent and 24 per cent reflecting the investor’s concerns. However, as the new chairman of Tata Sons, Natarajan Chandrasekaran, was appointed, the companies overcame the losses at the stock market and regained its stakeholder’s confidence.

Boardroom fights often impact the image of the companies in overseas market too. Clients and business partners might lose trust on the management. It is not a healthy sign of Indian business sector, especially when government of India is encouraging FDI inflows into the country.

With toppling of share market in effect of Boardroom tiffs, SEBI has gone strict with evaluation of board. It has requested Government of India to amend Companies Act 2013 to tighten rules in appointment of independent directors on board. The Uday Kotak committee, SEBI, has made recommendations that will help ameliorate corporate governance and boost investors’ confidence. The recommendations include increase in number of board meetings in a year from four to five; minimum of six directors with at least one women director for the listed companies; 50% of the directors to be non-executive; at least half of the board members to be independent directors whose presence is paramount for board meetings. Further, the committee also recommended separation of roles of chairperson and managing director, and the chairperson should be a non-executive director.

The boardroom coup, though can run for longer duration, has a short term impact on economy and investors. The share prices rebounds and stock market gains confidence over time. It is paramount that leaders of 21st century understand the dramatic changes in the locational, communicational, decisional, financial aspects of running an enterprise in the changed global-regional-national scenarios. The Boards' performance will be under evaluation by investors and adherence to the principles of governance will be among the evaluation parameters. Entrepreneurial enthusiasm and sustainable systems/values will have to be balanced with good governance.

This article has been authored by Sunakshi Charan Pahari from Great Lakes Institute of Management

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