AM Naik, the Larsen and Toubro veteran, did not cover himself with glory when he called the marshals martinet-like when a few obstreperous members raised legitimate questions in the 73rd Annual General Meeting (AGM) of the company held on 23 August 2018. He did this when questions were raised regarding the company’s Powai works being demolished to make way for a cancer hospital in the memory of his granddaughter. To be sure, he was a duly appointed chairman and was vested with the duty to conduct the meeting smoothly. But smooth running does not mean quelling dissent with a sledgehammer.
In company meetings, a more tolerant view is taken of dissent. The company law itself is more democratic in the sense it allows members to appoint proxies to vote in their stead. But a proxy is not allowed to speak lest a professional speaker, mostly an articulate advocate, comes to hijack the proceedings of the meeting. This gag order, as it were, on proxies is more often than not ineffective and a dead letter because the one intent on speaking does not take a proxy but becomes a full-fledged member. In the demat regime, a single share can be transferred which makes it a kid’s play for a professional proxy intent on speaking to morph into a full-fledged member. Be that as it may.
Uday Dixit, the ex-employee cum shareholder who spearheaded the dissent at the L&T AGM, was by no means an outsider or a proxy but seems to be having a legitimate objection though he might have been obstreperous. His question was: How can a company’s facility be razed to the ground albeit for an altruistic purpose? It is a sign of company veterans assuming a larger-than-life image that they resent being accosted with uncomfortable questions. AM Naik’s yeoman service to L&T from a young age till his retirement as an executive director has been well-chronicled. But does that allow him to steamroll a proposal to hand over company land for his personal hospital project albeit for an altruistic purpose---the hospital would be open both to public and L&T employees?
It is one thing for a local government to give land for hospitals at a huge concession keeping in mind public interest and subject to the condition that a certain percentage of its beds would be available for the indigent patients free of cost. But it is entirely different for a company to donate its land.
Section 181 of the Companies Act 2013 allows the Board of Directors to give away to charities up to 5 percent of its average (last three years) profits. If the aggregate of such donations exceeds 5 percent, a special resolution would be required. The section does not in terms countenance donation only in cash. By implication, donations in kind are not prohibited. If the L&T board was making a donation in kind, it should have taken the members into confidence. And if the value of the Powai land was more than 5 percent of the average profits, a special resolution of the AGM was called for.
AM Naik as a patriarchal figure in a professionally-managed company would have covered himself with glory had he been more tolerant of dissent which was by no means born of pique or ignorance. It seems the company had a license from the local government to run its factory up to 2019. That it was sought to be razed to the ground and post-haste handed over to the proposed hospital project seems to be unseemly in the light of the assertion that the land has now become the company’s, suggesting that company’s funds have been used to acquire land for its veteran Chairman’s personal project.
Instead of calling in the marshals, the chairman would have done well to move a special resolution. Its passing would have shown that the shareholders had thrown their lot behind the cancer hospital. Quelling dissent ham-handedly does not sit well with a professionally-run company. Nor can the chairman’s looming personality buttressed by a poignant backdrop be allowed to hold sway over vital decisions of a company.
It is amazing that the formidable proxy advisory firms were quiet on this issue. They have often influenced outcomes in high-profile companies with the case of Tata Motors case coming to mind immediately. The proposal to pay hefty minimum salary to working directors was shot down a couple of years ago with shareholders becoming wiser by the advisory, raised a stink. One wonders if their deafening silence at L&T has got anything to do with the larger-than-life persona of AM Naik or with his poignant personal loss. Neither stature nor emotions should hold sway over corporate governance issues. Would the L&T AGM have shot down the proposal had the opposition to it been triggered by an Ivy League proxy advisory firm rather than by Uday Dixit?
(The author is a senior columnist and tweets @smurlidharan)
Updated Date: Aug 27, 2018 11:47 AM