Unlisted cos need stronger norms: Experts

31 October 2016 | Source: Times of India

Mumbai: The sudden ouster of Tata Sons chairman Cyrus Mistry may not, in the strict sense, have resulted in any legal lapses given that it's an unlisted entity and it does not fall in the ambit of Sebi's corporate governance norms. Experts, however, are now demanding unlisted entities be brought under a better layer of governance in the interest of transparency and accountability.

"Matters at an unlisted promoter entity have direct impact on minority shareholders of a listed entity. Thus, it is not good enough to say these issues are not linked. The Tata Group of companies account for over 7% of the BSE's market cap. So, it is indeed a material event for minority shareholders," said Vineet Nayar, former CEO of HCL Technologies, who is currently founder chairman of Sampark Foundation.

He added, "This incidence clearly shows that Articles of Association is not enough for governance and we need a better layer of governance, which would encourage transparency and accountability even at the unlisted promoter entity level if it is a material issue — as this one — that impacts minority shareholder."

Nayarsaid a key issue that will come into focus will be the boards of the listed Tata entities and how they deal with a chairman who is not wanted by the primary promoter entity. "This will throw spotlight on the role and responsibility of independent directors on such boards. Questions would be asked if it is not expected of these listed entities to share their views to address the concerns of minority shareholders now," said Nayar.

The entire set of regulations and guidelines that govern listed entities should also apply to unlisted bodies, says Shailesh Haribhakti, founder and chief mentor, Baker Tilly DHC, who serves as independent director on a number of leading companies. "I am not averse to an unlisted entity like Tata Sons coming under the purview of the MCA (ministry of corporate affairs)."

Haribhaktisaid when individual boards of Tata companies take a call on the chairman, the spotlight will be on the role of the lead director and the nomination and remuneration committee on how they exercise their independence and take decisions in compliance with the values, structure and culture of the company.

"The independent character of the board and directors will drive what decision finally emerges. They will have to operate from their moral compass," he added.

The $103-billion Tata Group is a global enterprise comprising over 100 independent operating companies. Each Tata company operates independently under the guidance and supervision of its own board and shareholders. Tata Sons is the holding company with 66% of its equity share capital held by philanthropic trusts.

"Individual Tata companies have a different structure, composition and culture — they are all unique in their own way. Any decision taken by a single Tata company board may not apply to the others," said Haribhakti.