Proxy advisory firms: ‘Controlling shareholders removing independent directors undermines integrity of the process’

Nusli Wadia. Singling him out adds fuel to the rumours that the differences are personality-driven, rather than issue based,” said a report by Institutional Investor Advisory Services (IiAS).

By: ENS Economic Bureau | Mumbai | Published:November 16, 2016 2:08 am

Proxy advisory firms on Tuesday questioned the rationale behind resolutions passed by Tata Sons for removal of Nusli Wadia, the current chairperson of the Wadia Group, from the board of Tata Chemicals, Tata Steel and Tata Motors.

Last week, Tata Sons passed resolution for Wadia’s removal after he supported Cyrus Mistry in the board meeting of Tata Chemicals on November 11, taking on his old friend Ratan Tata who ousted Mistry in Tata Sons on October 24. Wadia had sided with Ratan Tata when he took on group satraps such as Russi Mody, Darbari Seth and Ajit Kerkar in the 1990s. Wadia has been an independent director on board of Tata Chemicals since 1981, Tata Steel since August 1979, and Tata Motors since December 1998.

“But what is more surprising is that among all the independent directors, Tata Sons has sought the ouster of only

Nusli Wadia. Singling him out adds fuel to the rumours that the differences are personality-driven, rather than issue based,” said a report by Institutional Investor Advisory Services (IiAS).

“Allowing controlling shareholders to remove independent directors from the board undermines the integrity of the entire process and the institution of independent directors itself,” the report added. The IiAS report said that while Tata Sons as the promoter shareholder can seek to remove an independent director, such resolutions have rarely been issued by Indian promoter shareholders.

“Tata Sons may be reacting to Nusli Wadia because they feel a sense of betrayal, but the logic must not be extended to all independent directors … Healthy conflict and debate can bring in more openness in the boardrooms and prevent the risk of insularity. For this, independent directors must be given the freedom to exercise their own judgement without any fear of retribution. Hanging the Damocles Sword of eviction over their heads will be counter-productive. More importantly, it will be a great disservice to the minority shareholders,” said the IiAS report.