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THEIR FAILINGS, OUR LEARNINGS

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TIMING ONE’S DEPARTURE

Context:

The resignation from the Board, of an Independent Director, who was also the Chairperson of the Audit Committee, raised major doubts in the minds of shareholders of a large mining company. They wanted to know the true reasons for her resignation, and listed a number of possible reasons. Was there a role for the Stakeholders Relationship Committee to step in and clear the air?

  • An Independent Director (ID) and Chairperson of Audit Committee (AC) of a large listed entity resigned from the Board citing the reason “to balance her work and other family commitments”.
  • The Small Shareholders Welfare Association, in an open letter posted on a blog, mentioned that “Madam, you were our representative on the Board, you owe it to us. Please give us the true reasons for your resignation. We have stopped expecting anything from other so called Independent (sic) Directors. No so-called independent director of the company has your spine and uprightness to let go such huge personal benefits that too post retirement”.
  • They also asked her to disclose the “true reasons” for her resignation since
    1. She was getting paid handsomely and received Rs. 85.50 lakhs from the Company.
    2. She had not resigned from any other companies on whose Boards she was a Director.
    3. Her final term as an ID was to come to an end in 9 months.
    4. In FY 19-20, there were only 7 meetings of the Board and the AC.
    5. Statutory Auditors had qualified the Audit report stating that the parent company was facing material uncertainty relating to going concern, owing to a $ 956 million inter-corporate loan to the parent company, and the probability of its repayment was questionable.
    6. Questions were being raised on violation of the Company’s Dividend Distribution Policy.
    7. There could have been differences or other issues such as issues of compliance, governance and audit that could have compelled her to resign or whether she was asked to resign.
  • The Small Shareholders Welfare Association went on to add that she was their representative on the Board, and they had tremendous faith in her. They also called her the “torchbearer of Corporate Governance”.
  • They also requested her to inform MCA, SEBI, Stock Exchanges, Life Insurance Corporation and small shareholders about the true reasons behind her resignation.
  • The Stock Exchanges sought clarification from the Company on grounds that there were no other material reasons other than those provided by the Company for the resignation of the ID. The Company accepted that there were no other reasons, and attached her resignation letter.