In a series of letters over the past couple of weeks, Nusli Wadia has raised several questions about the way the Tata Group has been functioning over the years. The allegations are serious — violation of insider trading norms by Ratan Tata and some of his trusted lieutenants; the way Corus was acquired at a heavy cost to Tata Steel’s domestic operations; the Nano misadventure, etc. On their part, the Tatas have accused Wadia of galvanising other independent directors to act against the interests of the group.
In his letters, Wadia said he differed with many of Tata’s decisions on several occasions in the past. Even if one assumes Tata and the top management of the companies — in which he was an independent director — treated him badly over several years, the question that arises is why Wadia stayed quiet for so long. After all, he has been an independent director of Tata Steel since August 1979, Tata Chemicals since June 1981 and Tata Motors since December 1998.
The Corus acquisition was made in 2007 and the Nano was launched the following year. If he differed with these decisions so strongly and got no response, the minimum Wadia should have done was to register his protest by resigning from the independent directorships of these companies. The fact that he did nothing and chose to break his silence only after getting a sack notice from the Tatas doesn’t speak highly of the so-called “independent” spirit of a man who had earned the nickname, Corporate Samurai, because of his frequent run-ins with corporate India’s high and mighty.
In fact, in an interview to this paper in 2012, Wadia made it a point to speak highly of Tata and his ethical values. It’s ironic he is now charging the same man with possible insider trading and poor governance practices. No one knows the actual reason for this change of heart, though the buzz in the corridors of corporate India is that the Tatas and the Wadias — friends and allies for decades — were lobbying hard against each other over the 5/20 norm in the civil aviation policy for domestic carriers to fly international.
The problem with independent directorships in Indian companies is precisely this. Promoters choose independent directors not for their competence alone; the operative word is friendship and past alliances. It’s no mere coincidence that Tata was an independent director on the board of Bombay Dyeing for 33 years.
The friendship between Wadia and Tata ran quite deep. J R D Tata played a pivotal role in helping Wadia stave off the sale of Bombay Dyeing when his father Neville Wadia signed an agreement to sell their flagship company to the RPG group. Wadia repaid that gesture generously, as he stood by Ratan Tata during his skirmishes with satraps such as Russi Mody, Darbari Seth and Ajit Kerkar.
All this is fine as long as it remains just between two friends. But if people start distributing independent directorships because of friendships and alliances, the casualty inevitably is the role of independent directors, which is to bring objectivity to the board, protect the interests of minority shareholders and improve risk management. In reality, this rarely happens in India.
Some independent directors stay on a board for decades while some others sit on multiple boards, hampering their ability to effectively scrutinise management decisions.
A lack of will among company founders or dominant shareholders to improve governance has also affected the functioning of independent directors. There are examples galore: Satyam Computer Services (some of the renowned names desperately tried to distance themselves from the board decisions), Kingfisher Airlines, Ranbaxy Laboratories,
S Kumars... the list goes on.
Most independent directors are loath to go against the shareholders or promoters, who appointed them in the first place. Some actually feel beholden to them for the substantial remuneration they receive in the form of sitting fees and commission on profits. The vast majority are people conditioned by culture — the culture of not expressing dissent forcefully — and are therefore intimidated or unsure how their criticism would be taken.
A study by A T Kearney, AZB & Partners and Hunt Partners revealed that 90 per cent of companies it surveyed appointed independent directors using referrals from the chief executive or chairman. Observers say the result is obvious: Directors so appointed want to be viewed by the controlling shareholders as flexible and cooperative rather than rigorous or principled.
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