From Tatas to Infosys: Between founders and boards is a battle of aspirations, regulation is no solution

Two back-to-back cases involving companies which were looked upon as symbol of good governance has once again brought back the focus on relationship between founders and management. This question arises due to a sense of entitlement that some promoters have, which gives them a right to be treated as a super shareholder.

The question is should we live with this sense of entitlement or come to a reality that promoter is not any different from any other shareholder? That at the least is the legal position, both under the Companies Act 2013 and Sebi regulations. If that be the case, what happens to the risk that the promoter took? What about his labour that promoter put in to create the company and value? Should it be forgotten?

Reuters

Reuters

These are the difficult questions without any simple answer. On the other hand, allowing promoters any special rights create another set of problems, both legal as well as operational. While one can take care of legal issues to a great extent by defining procedures, mandating Chinese walls etc., it is the operational issue which is probably more difficult than the rocket science, as it concerns human aspirations, nature and need for control. Giving up something of which one has become habitual is probably most difficult thing to practice.

It can be easily compared to a mother-in-law syndrome at home, where a mother-in-law ostensibly hands over management to a daughter-in-law, yet wants to have an eye and control on everything. This disturbs harmony at home, unless either side gives up. Therefore, relationship between the founders, who have given up active role, and the boards most often are reflective of this syndrome. It is not a newly developed phenomenon like, say WhatsApp. It has been there for long.

However, things have changed in the recent past as more and more companies, at least for public consumption, are professionally managed. And new sets of governance requirement and disclosure norms have brought transparency which hitherto was hidden. Corporate India is feeling the same heat as is felt by three wings of the government due to electronic and online media. Cases of disputes, mismanagement and breakdown are on the rise, therefore the two cases, Tata and Infosys are not any exception, but worrisome due to their impact.

What is the way forward to avoid such mishaps? One thing is clear that there cannot be any regulatory solution for such issues as it is battle between aspirations, expectations, sense of right and big-brother attitude. Challenge is to bring harmony between founders and current board/ management keeping in mind the ultimate objective of creation of shareholders’ value.

Creating an advisory board consisting of founders and independent experts could be a way forward, ensuring that no interference on day-to-day matters. Further founders may be preferably nominated on boards, subject to their meeting all criteria and ability to contribute and board composition complying with law as well as organisational needs. And lastly developing mutual respect rather than a falsely assumed sense of superiority or importance by either side.

Change is inevitable, greatness is not permanent. Let’s all accept it gracefully, remembering Sahir Ludhianvi and his poetry - Main pal do pal ka shayar hoon....

(The author is former Executive Director of Securities and Exchange Board of India)


Published Date: Aug 22, 2017 10:53 am | Updated Date: Aug 22, 2017 10:53 am