Context: In the case of this large manufacturing Company, a proposal to substantial increase the pay of a promoter VC & MD did not get the requisite shareholder approval in the first instance.

  • The Nomination and Remuneration Committee (NRC) of a listed Company recommended, via postal ballot, the re-appointment of the Vice Chairperson & Managing Director (VC & MD), who is part of the third generation of the promoter family, for a term of 5 years, with effect from May 28, 2019.
  • In the Board meeting held on August 1, 2018, he was re-appointed, subject to the approval of the shareholders.
  • His salary was fixed at INR 42 lakhs per month, with suitable increases as may be determined by the Board/ its Committee from time to time, not exceeding 15% annual increment each year, commission up to 5% of total profits and perquisites restricted to 300% of the total salary.
  • The period of e-voting for this proposal was from August 9, 2018 to September 7, 2018. This was a special resolution. As per SEBI LODR Regulations, if the remuneration payable to an Executive Director, who is a promoter or part of the promoter group, exceeds INR 5 crores or 2.5% of net profits, whichever is higher, a special resolution is required.
  • The special resolution was defeated, with more than half of the public institutions voting against it, even as the promoters and non-institutions supported it.
  • 72.71% of the votes polled were in favour of the resolution, falling short of the minimum 75% required. Institutional investors owned 44% of the shares, and roughly 56% of those voted against the resolution.
  • The reason that some institutions did not back the re-appointment was the higher pay proposed to be paid to the VC & MD. In FY 2016-17, his annual salary was INR 30.89 crores, and this increased by 43% to INR 44.64 crores in FY 2017-18, even though the Company’s profits fell by 34% during the period.
  • In the Board meeting held on October 1, 2018, the Directors reiterated their unanimous approval of the VC & MD’s leadership since he had taken the Company to greater heights since he had joined the Company. This was communicated to the Stock Exchanges vide a filing on October 3, 2018. The filing further stated that the Board would seek shareholder guidance and independent counsel on a compensation level commensurate with the position. Once that process was completed, the Board would re-nominate the VC & MD to be re-appointed with effect from May 28, 2019.
  • As per a Stock Exchange filing dated November 13, 2018, in October, 2018, the NRC engaged with a range of institutional shareholders to take their views into consideration, and commissioned an independent report from one of the big 4 audit firms to benchmark the VC & MD’s compensation structure.
  • This twin process of consultation and external benchmarking resulted in a significantly revised proposal from the NRC for the compensation package to renew his contract from May, 2019. The revised proposal resulted in a reduction of approximately 30% in overall compensation for him, as well as for the Chairperson of the Company, who too was a promoter, and the VC & MD’s father.
  • Both the Chairperson and the VC & MD agreed to a reduction in their compensation in FY 2019, post the study by the big 4 firm.
  • 0n November 13, 2018, the NRC once again recommended the re-appointment of the VC & MD for a term of 5 years from May 28, 2019 till March 31, 2024, on revised terms and conditions, including the remuneration, subject to the approval of the members of the Company via postal ballot.
  • The revised salary of the VC & MD was fixed at INR 32.90 lakhs per month, with suitable increases as may be determined by the Board/ its Committee from time to time, commensurate with average percentile increase in the remuneration of employees at one level below the Board of Directors, commission up to 3.5% of total profit and perquisites restricted to 150% of total salary.
  • On the basis of the study, 3 of the major changes to the compensation, that were proposed by the NRC, were
    • A cap on total promoter compensation set at 7.5% of Profit Before Tax (PBT). This was to be reduced over a period of time. (For FY 2017-18, the total compensation paid to both the promoters was a little under 10% of the consolidated net profit of the Company).
    • Performance-based remuneration to be targeted at approximately 70% of the total compensation.
    • Annual increments for the fixed portion of promoter compensation will be in line with that of the senior professionals of the Company.
  • On December 21, 2018, the Company informed Stock Exchanges that the special resolution had been passed. 96.72 % votes were cast in favour of the resolution.

Points to ponder

  • Should there have been wider consultations and better benchmarking, before finalising the proposal?
  • Could the NRC have done a better job?


Context: This private sector bank experienced the truth that concentration of power goes against the grain of Corporate Governance. Is “defy, deny, decry” a fit response, when there is a crying need for change?

  • Prior to the retirement of its CMD, the Board of a large private sector banks initiated the process of succession planning for finding his successor.
  • It hired one of the largest global HR firms to help with this exercise.
  • Further, consistent with RBI’s advice, the Board wanted to alter the Articles of Association (AoA) of the Company to split the post of CMD to the posts of a non-executive Chairperson and a separate MD & CEO. 
  • In 2004, when the proposal to split the two positions was first brought to the Board, the CMD, who was against the idea, threatened to resign. To retain him, the Board gave him a 5-year term.
  • In May, 2007, RBI insisted that the post of CMD be split. The Board was also told that there must be succession planning and that the CMD must groom his successors. The split in the post of CMD was a step in that direction.
  • Post that, the Board insisted that the CMD should groom a successor, but he argued stating that he did not believe in grooming one. As per him, the day he quits, another person will take over, as was the case in public sector banks.
  • After sometime, the Board gave the CMD an option to stay on as a Non-Executive Chairperson, and to appoint a CEO. This was not accepted by the CMD. Both the RBI and the Board were not happy with the concentration of power in his hands. A number of insiders too were complaining in private that he had not done enough to build the second line of leadership, and had made himself indispensable by not grooming a successor.
  • In 2007, he wanted to step down, after reaching the age of 60 years, but the Board prevented that from happening, by recommending him to continue for another 2 years.
  • RBI accepted this, with the understanding that the post of CMD will be split in 2009, with the CMD retiring.
  • In 2009, after a thorough search, a successor was identified to be appointed as the MD & CEO of the Bank. The successor was the MD & CEO of an insurance Company.
  • The retiring CMD opposed this decision since he wanted an insider to succeed him. He further mentioned that the proposed successor lacked relevant banking experience.
  • The Board did not agree with the stand of the retiring CMD, since the internal persons recommended by him, while being experts in their fields, lacked overall experience of running a Company.
  • The Board voted on this issue, and the result showed that all the Board members, including Nominee Directors, except the retiring CMD, were happy with the proposed successor.
  • The retiring CMD walked out of the meeting and quit his post, a little over 3 months ahead of the end of his tenure.
  • In the AGM that year, shareholders approved the appointment of the new MD & CEO. They also approved the change to the AoA for the split in the post of CMD. 


Context: As this energy and environment engineering company showed, leadership is about accepting advice and acting quickly. All problems cannot be anticipated. Quick responses might often save the day. Is courage of conviction, what sets winning companies apart?

  • When the founder of a Company, which is into energy and environment engineering, had a serious health scare, he recognised that it was important to have family members in the business. Soon thereafter, his wife joined the business in the HR department.
  • A year after the Company went public, the founder passed away.
  • The Board met 2 days after the death of the founder, and chose the wife of the promoter to be the Executive Chairperson. She felt that the family’s majority shareholding was responsible for her appointment and was uncomfortable with it.
  • Shortly thereafter, she lost her son.
  • The next couple of years saw a downturn in profits of the Company because of external factors adversely affecting the sector at that time.
  • Some years later, a shareholder’s letter to her, accusing her of not taking care of her shareholders, acted as a wake-up call and she decided to take things in her hand.
  • As part of a process of revamping the Company, a leading consultancy recommended that professional management should run the Company, and the Board should be changed. As a result, professional management was hired. Also, the entire Board resigned.
  • The new Board inter alia had her daughter and son-in-law, and her, as a Non-Executive Chairperson.
  • At the AGM of the Company some years later, she announced that her daughter, who was then the Vice Chairperson, would take over from her as the Chairperson of the Company, and that she had a year to accustom herself to the new role. The choice between being an Executive Chairperson or a Non-Executive Chairperson was left to the daughter.
  • The daughter had first joined the Company, as a trainee engineer, after obtaining her engineering degree. Ever since, she was associated with the Company’s operations in various roles and locations.


Context: This leading chemical company saw a high-profile departure from the Board. Leaving when persons ask “why”, and not when they ask “why not”, is a test of courage of conviction. Overstaying one’s welcome is often fraught with adverse consequences. Why wait till eyebrows are raised?

  • The promoter Non-Executive Vice Chairperson of a large listed Company was to retire by rotation at the AGM to be held on August 31, 2020, and being eligible, had offered herself for re-appointment as a Non-Executive Director.
  • 2 Proxy Advisory firms (PAFs) advised the institutional investors to vote against her reappointment, citing her age (79 years), and the excessive compensation paid to her through subsidiaries of the Company, as mentioned in the notes to the consolidated financial statements of the Company (INR 9 crores).
  • PAFs claimed that this was done so that the Company did not have to disclose the compensation paid to her, and did not have to seek any approvals.
  • She resigned in the Board meeting held on August 31, 2020, just before the AGM.
  • The Company cited ‘’personal commitments’’ as reason for her resignation in their letter to Stock Exchanges.
  • The resolution on her re-appointment was dropped from the AGM agenda after her resignation.


Context: The proposal for a fourth term for the Managing Director of a private sector bank, ran into problems with the Regulator. Did the Nomination and Remuneration Committee fail to measure up? Could the consequent embarrassment have been avoided by a meaningful conversation between the bank and the Regulator?

  • A private sector bank’s then MD and CEO was appointed in June, 2009 for a term of 3 years, and subsequently for 2 more terms of 3 years each.
  • In July 2017, the Bank’s Board approved her re-appointment for a fourth term of 3 years, and her new term was to begin from June, 2018, subject to RBI’s approval.
  • In March, 2018, RBI imposed a penalty of Rs 3 crore on the Bank for mis-stating levels of NPAs.
  • In April, 2018, RBI asked the Bank’s Board to reconsider its decision to reappoint her amid concerns over rising bad loans, Bank’s performance and deteriorating asset quality condition etc.
  • Some other reasons that were speculated to be responsible for RBI’s decision included –
    • During demonetisation, the Bank was in the news for alleged involvement of its staff in suspected money laundering activities and illegal note conversions. Income Tax Department had conducted several raids and arrested few of its employees.
    • In December, 2017, SEBI had ordered the Bank to strengthen its systems and conduct an internal probe to fix responsibility on leak of price sensitive information as the initial investigation of SEBI had shown leakage of price sensitive financial information was due to “inadequacy" of processes at the bank in the WhatsApp leak case.
  • In response to the RBI’s letter, the then MD and CEO requested the Board to shorten her reappointment period to 7 months, from 3 years. The Board accepted her request.
  • In April, 2018, an external firm was appointed by the Bank’s Board to help in identifying a successor for her.


Context: The forcing out of the Group Chairman of a large diversified group, gave rise to several questions. Issues of process and legitimacy of the decision to remove him, led to doubts regarding Corporate Governance practices being followed within the group. Could this have been handled better?

  • In 2005, the Board of the holding Company of a diversified Group increased the retirement age of Non-Executive Directors (NEDs) on its Board, from 70 years to 75 years, ensuring that the then Group Chairman would be in office till the year 2012.
  • In 2010, the Company announced a 5-member search committee, to find a successor to the then Group Chairman, who was due for retirement in December, 2012.
  • This was per the terms of Articles of Association which inter alia stated that “For the purpose of selecting a new Chairman and Board of Directors, the selection committee shall be constituted in accordance with the provisions of this Article, to recommend the appointment of a person as the Chairman of the Board of Directors. And the Board shall appoint the person so recommended as the Chairman of the Board”.
  • The search took almost one year, and one of the members of the 5-member committee was chosen and selected as the next Chairman in 2013. He was also made the Chairman of a number of group companies, most of which were listed. His name was reportedly not one of the several names that had been considered from time to time by the committee.
  • The new Chairman had been a Director on the Board of the Company since 2006, a year after his father had retired from it as a Director.
  • There were several media reports which questioned his appointment since he had never handled a large diversified group of companies, which were spread across several countries and geographies.
  • In 2016, he was ousted. The reason given for it was that his style of functioning and leadership resulted in some discomfort or insecurity within the Group.
  • Post his ouster, the Board appointed the earlier person as the interim Chairman, until a successor was appointed.
  • Another committee was formed, and the then-MD of a group company was selected as the Chairman in 2017.


Context: In this leading company in its financial services segment, it took 6 months to identify a successor CEO. Succession planning is often talked about, but rarely practiced. Did the Nomination and Remuneration Committee slip up big time?

  • In a listed entity, with its majority institutional shareholder headquartered outside India, the MD & CEO, who had several years of service ahead of her, decided to tender her resignation without advance notice to the Board, well ahead of the next Board meeting. She had been the MD & CEO for 7 years, and had worked in the Company for over 21 years.
  • She offered to continue with the Company till a suitable successor was identified.
  • This, being a material development, it had to be communicated to the Stock Exchanges on which the Company was listed.
  • In the absence of an identified successor, the press release from the Company could not name a successor. The press release mentioned that “She believes that from a governance perspective, this is the right time to move on.”
  • There were a number of rumours on the possible reason for the sudden exit, with adverse implications on the share price. Within the Company also, there was a lot of scepticism, and there was speculation that senior level exits could take place.
  • It was stated that the outgoing MD & CEO provided adequate job rotation to the next level, but none of her colleagues appeared to have had been groomed for higher responsibilities. There were different persons heading different verticals/ businesses within the Company.
  • Since the responsibility, in the interim, was not formally entrusted to any senior functionary in the Company, there was speculation that no insider was being considered for the top job, even though the Company’s official position was that the search process would look at insiders as well as outsiders.
  • A global search firm was hired, and a successor was identified after 6 months of the resignation. Meanwhile, some top exits happened.