A reputed diversified Group, dug in and resisted the attempts of one promoter branch for Board representation or a proper exit.
- In a diversified Group, which has been in operation since 1900, and with 28 registered businesses, including 10 listed companies, one criticism which has often been voiced, is that only male heirs to the family have been selected to succeed persons from the previous generations.
- In the Group’s family tree published on its website, only male heirs are listed. Of the 8 branches of the family, only 7 are mentioned since one of branches has two daughters and no sons.
- The daughter from that branch, along with her sister and mother, jointly inherited an 8.15% stake in the holding Company of the Group, from their father, who was the family patriarch, and the Chairman of the holding Company (an unlisted public Company, which has controlling stake of the Group, with 91% being held by the family) as also some of the other listed companies in the Group. The holding Company had, as members of the Board, persons from the other branches of the family as also a few Independent Directors (IDs).
- Post the passing away of the patriarch in 2017, his daughter had discussed, with her uncle, who was then the family patriarch as also a Board member, and part of the management of the holding Company, two options for her inheritance.
- One of the options was to give her or her sister a seat on the Board of the holding Company. The second option was that she exits by selling her stake to other family members at a fair market value. She mentioned that both she and her sister were qualified and experienced, and were eligible to get a seat on the Board. She is a nuclear engineer by qualification and a technology consultant by profession.
- Both these options were rejected by the Group.
- The Group claimed that she was fighting for succession, and not for her shareholding, as was being claimed by her. She backed her claim with the amendment to the Hindu Succession Act 2005, which allows daughters to inherit equally as sons. She is the Karta of her HUF.
- She alleged that till the Board meeting held in November, 2019, the approach to the matter was very vague and generalised. Later, finally, the Group allowed for her Board nomination, but did not appoint her in the interim, and asked her to wait for the next Annual General Meeting (AGM), which was 9 months later, in September, 2020.
- In a media interview in early January, 2020, she stated that, “My father, in his will, bequeathed everything to me, my younger sister and my mother, and clearly stated his wish to give us equal rights and to represent our branch in the family business, We are only running from pillar to post to get what is rightfully ours, but nobody is reciprocating in the same manner,”
- She further stated that their branch of the family had amongst the largest shareholding group in the holding Company. However, it is the only branch of the tree that is not represented on the Board since her father passed away.
- On January 6, 2020, she stated that the Chairman of the Group had sent an email to the senior functionaries of the Group, after she went public, that that the Group will try to amicably settle the issue. However, he expressed disappointment with the matter going public.
- On September 22, 2020, her claim to a Board position was put to vote at the AGM. 91.36% of the shareholders rejected her appointment. The shareholding of the promoters is 91%.
- In October, 2020, she served a legal notice to the family members and the holding Company’s management, and other persons related to this matter, following a denial of a Board seat on the Board of the holding Company. She stated that with the voting results of the AGM, an amicable settlement was not possible.
- In November, 2020, the Group was reported to have undergone restructuring. It was decided to dismantle its two-decade-old non-statutory Corporate Advisory Board. Instead of the Advisory Board, which comprised a family member and five outsiders, the Group and individual companies were to be led by senior family members.
- This Advisory Board had been formed in January, 2000 as part of a ‘new millennium strategy’, under a new corporate governance structure. The main role of this Advisory Board was to advise group companies on various matters.
- The Chair of the Advisory Board had resigned from it, and 3 other listed entity Boards of group companies, post attaining the age of 65 years. The Group had a practice of Executive Chairmen resigning from their positions on reaching the age of 65 years.
- In response to the news of restructuring of the Group, she stated that the restructuring exercise had been done to safeguard the family’s interests, rather than protecting the interest of the shareholders. The decision to dismantle its two-decade-old non-statutory Corporate Advisory Board was not in the interest of the shareholders. She also claimed that her family was not part of the decision-making and that they learnt about this from media reports.
Points to Ponder
- Is Board representation a right derived from being a shareholder from the larger family Group?
- Could the family versus shareholder issue have been handled better?
- What could the IDs have done differently?