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Construction major HCC today issued a statement, denying the contents of a voting recommendation report published by governance firm Stakeholders Empowerment Services (SES) earlier this week. In its report, SES had asked shareholders to vote against five of the nine resolutions to be considered at the company’s annual general meeting scheduled for Friday.
Citing governance concerns, SES had opposed five resolutions---the reappointment of auditors KS Aiyar & Co; the reappointment of Managing Director Ajit Gulabchand and fixing his remuneration; and the appointment of Rajgopal Nogja as whole-time director and fixing his remuneration.
In a lengthy statement that had an item-wise rebuttal of the SES recommendations, an HCC spokesperson said, “News reports based on the advisory put out by the proxy advisory firm Stakeholders Empowerment Services (SES) regarding HCC are being published by media over the last two days. HCC completely refutes the content of this report.” On the reappointment of auditors who had already served the company for about 15 years, HCC said, “At present, there is no law that prohibits the appointment of auditors for any number of years.”
If the company law brought about such a practice, the company would follow. The auditor is completely independent and does not have any business interest or shareholding in any of the group companies. Therefore, there is no requirement for rotation of auditors under the present law.”
On the remuneration to Gulabchand, which SES said was excessive, considering the company was facing losses, HCC said its shareholders had approved this “and had passed a special resolution for approval of the payment of the remuneration of Rs 10.65 crore to Ajit Gulabchand for 2012-13.” It also said “considering the current financial position of the company, Gulabchand had expressed his desire” to freeze his pay at current levels for the next three years.
According to the company, the managing director “has to discharge vast responsibilities which will continue to grow manifold in the coming years”. It added, “Needless to say, in these tough times, the company ought to be continuously guided and lead under an able leadership and the remuneration committee had, therefore, after considering the size of the industry in which the company operated, the competitive and complex business environment, the size of the company, the business acumen and dynamism expected in discharge of the role of the chairman & managing director, felt it was appropriate that Gulabchand continued as chairman & managing director of the company. The payment of the proposed remuneration to him was considered to be commensurate with his competence and the exceptional leadership to be shouldered in the prevailing business environment.”
On Nogja’s package HCC said, “The proposed remuneration payable to him is comparable and in line with the remuneration paid to similarly placed and talented professional directors in our industry.”
In response to HCC’s rebuttal, SES founder J N Gupta said the governance firm didn’t contend HCC violated any law. “Governance is not complying with law alone. It is much more and much beyond,” he said.
On Gulabchand’s pay package, he said, “What we are saying is when the company is going through a bad phase and shareholders are not getting any dividend, is it ethical and good governance to get such a high salary? What is the justification for a 100 per cent increase in the previous year? Did other employees get the same increase? What has been the role of independent directors in such a decision? Nowhere is it said it is illegal. Morality, ethics and governance are, unfortunately, not limited by law.”
HCC’s independent directors include ace deal maker Anil Singhvi, who has spearheaded the governance movement by promoting a proxy advisory firm---Institutional Investors Advisory Services, which has issued similar recommendations on the rotation of auditors, as well as other governance issues, on several companies.
