Founders, Executives, Investors...Who Is The New Boss?

The tug of war continues and so do the scandals. Corporate governance is mired in controversy across the globe. A lot remains to be done...

The following article is based on a panel discussion during the annual CFO Conclave held between 15 and 17 September. The panellists were (L to R) Rishabh Kaul, Co-founder,; Praveen Sood, Group CFO, HCC Group of Companies; Nawshir H Mirza, Professional Independent Director; and Dr Sankarshan Basu, Associate Professor of Finance & Control Area, IIM-B.

The new-age maverick CEOs and their bohemian and flashy leadership styles are not palatable to the old school founders. The investors, meanwhile, are no longer the quiet third wheel and are losing faith and patience. So who is the real boss now – the founders, the executives, the investors or the independent directors? Who will ensure how the board and the company function?
As Nawshir H. Mirza, Professional Independent Director, put it: “We are within the confines of a capitalist system and our laws are all derived from this system, which simply means that any organism or organisation within the system exists because it serves the capital provider. Obviously, the guy who provides the maximum amount of capital, sometimes called the controlling shareholder, is the guy who calls the tune. That’s the system.”
“Then you may ask what about these so-called professionally managed companies? Most of them have Indian institutional investors that are the con­trolling shareholders, in a manner of speaking. Actually, they never control. They concede control to whoever is in the saddle. The man in the main chair essentially becomes the person who wields the power of the controlling shareholder because the controlling shareholders are not willing to exercise their powers and enforce their powers. They self perpetuate and they go on and on. Finally, they become emeritus or something. It’s only God who can bring them to an end,” he averred.
In organisations where there is such distributed ownership, who is the boss? “There are very few organisations with ownership so distributed that you can’t discern a controlling one. The chairman of the board essentially becomes the man in control. Now what is the role of independent directors? I have always said that independent controllers have mainly two roles and they need one attribute to be able to play those roles. I think the first role for an independent director is to challenge management, and as in most cases the management is nothing but the voice of the controlling shareholder, it is to challenge their over optimism,” Mirza explained.
Notably, far more companies have come to grief because of their over optimistic controlling shareholders and their management voices. “And the role of the independent direc­tor is to act as a brake and never an accelerator. The second role of the independent director is to be the voice of those stakeholders who are not pres­ent around the boardroom table. Who are these people? These are customers as no business can succeed without customers. Also he needs to see the impact this business is going to have on the future generation. Is it going to be an adverse or negative impact, and should he be conscious of that? This is what relates to sustainability, or the impact of the business on future generations. If you look at it from that perspective, you get a slightly different view of what you should do.”
And what attribute should an independent director bring? “I think the one attribute an independent director needs to bring and here I contradict many people who say that the board should be nothing but a collection of individuals who bring the knowledge which sits above the knowledge executive team brings. If those guys can’t manage their own show, I think you should change them. The board should be a collection of very high-level executives who are looking over the shoulders of the company’s executive team.”
Mr Mirza concluded: “What the out­side director has to bring to the board room is wisdom and the ability to look at things in a far more holistic fashion, which is difficult as long as you are on the treadmill of an executive role.”
Asked if shareholder activism is an answer, and shareholder activists are important in the way companies operate and run today, Dr. Sankarshan Basu, Associate Professor in Finance & Control Area, IIM-B, stated: “Our structure is very difficult to have a diffused ownership. It means fundamentally you need to have more retail participation in the equity market and our retail participation is fairly low. So if you don’t have more people coming in, then you are essentially holding a larger chunk of share. It may not be directly with you but could be through a trust or a lot of other family-owned establishments/structures. Individually, I may still be a minority shareholder but I collectively represent the voice of the majority of the controlling state. In other words, that problem is very difficult to be resolved unless we have a larger mindset changed in terms of having a larger participation in the retail/equity market. And, unless people are actually coming to the equity market, this is not really going to happen.” 
Unfortunately, in India, we tend to treat shareholder activism in a fairly negative manner. “Shareholder activism is a good argument to propound and go forward, if carried through with a proper agenda or an honest agenda. One way to solve the problem of concentrated holding is shareholder activism. I won’t even use the word activism here but an enlightened, interested and engaged shareholder,” he added.
Praveen Sood, Group CFO at HCC Group of Companies said: “Whenever you want to get a person disruptably into an organisation from a completely different environment and try to put him above everyone and expect him to do wonders, you always have a problem.” The reason is that people are not well versed with the organisational culture and ethos. “This is what happened in the case of Infosys and Tatas.”
Rishabh Kaul, Co-founder,, a representative of the millennial club, added: “Talking about my company, we (the core team) are pretty much all founders now. There might be a possibility in the future where we might have to bring in professional management. Since we don’t want to lose out on learnings, interestingly, what we have done is that we got young guys in charge and we have got a lot of advisors on board who we can then tap into.”  

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