Board Room Spats: Way to Courtroom?

Oct-07-2020Blog by – Mr. Keval Lakhani (Chartered Accountant - Research)Read Time: 3 Min.Word Count: 727
178Board Room Spats:  Way to Courtroom?

Every business has its share of highs and lows. Many a times, there are arguments within the board of the business and such discussions could perhaps be healthy. One of the lows faced by business is when these arguments find a way to public forum which ultimately leads to mudslinging. A lot of these arguments are a result of the difference in the opinion of the founding team as opposed to the professional run management.  Sometimes, it is ego and ideological clashes between board members which lead to a public battle. In either of the situation, it is the image of the board, the company as well as the interest of the stakeholders which is at risk. 

Let’s have a look at a few board room battles which were a matter of public debate in recent past:

  1. Murugappa Group:  Murugappa group runs 28 businesses including 9 listed companies. It is present across multiple businesses such as auto components, fertilizers, sugar etc. Valli  arunachalam, the eldest daughter of the group’s late executive chairman Mr MV Murugappan, along with her mother holds 8.15% of Ambadi investments limited  (AIL)which is the holding company for Murugappa group of companies.  

The latest board meeting of AIL, by a whopping 91% majority denied Valli Arunachalam a right to a board seat on the all male member board. This perhaps, has opened the doors for a new courtroom battle . This could also hint at a gender bias within the board which is currently an all male member board.  She had also tendered the option for her shares to be brought out in AIL but those discussions seemed to have a come to a standstill. 

A family matter which should have been solved internally is now open to the scrutiny of the public and media. Is it time to rework on this line, Roses are red, violets are blue, lets smash patriarchy , me and you !?

  1. Tata-Mistry Saga: This could well be one of India’s most expensive boardroom spats which could lead the  Tata’s to cough up close to Rs 1.78 lakh crore to buy out the 18.5% of the Pallonji group in Tata sons.  Any board room battle which is drawn out in the public leads to mudslinging and such has been the case in the Tata- Mistry saga where each party has gone out in public to clear their stance at the same time demerit the view of the other party. This boardroom battle has led to many questions such as:

  1. Role of Independent director and are directors really Independent?

  2. How should a successor to a legacy business be selected? 

  3. Ability of the incumbent to give up on the role as the driver of the business once the successor has been selected, thereby giving him/her the necessary freedom to make policies and execute the same

  4. Acceptance of new ideas, involvement of the entire board and at the same time the calculated call to say no to a bad idea.

  5.  How to devise a mechanism to ensure proper flow of information? 

It seems that now the family is headed for a bitter split, but we could be headed for another round of arguments over the valuation as well as to who would be willing to buy Pallonji’s not such a minority stake in Tata Sons. It would indeed be corporate case study to see as to how the Pallonji’s would say Ta-Ta to the Tata group!

India has recently witnessed a few boardroom battles, be it that of Indigo airlines or Infosys. These boardroom battles lead to loads of speculative media stories, excessive clarifications and above all misunderstandings. But why is it that one must have to wait for board room battles to happen in public for vital investor issues such as corporate governance to be brought to the limelight? 

While board room battles make extremely interesting news as well as case laws, these battles generally leave a bad imprint in the mind of all stakeholders as well stand to risk the future of the company itself.  But this also brings out the issue of investor activists in India and the under education of the Indian investor to protect their own hard earned money.  

Each company, at private or public level should have an adequate mechanism in place to prevent and resolve disputes by way of negotiation, mediation and arbitration.

Read More: Eight Factors Driving Indian Rupee Right Now

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