The surprise announcement of a new managing director by diversified conglomerate Larsen & Toubro (L&T) was welcomed by the market, with the company’s shares gaining 5.27 per cent. But institutional investors and governance experts feel the company should put in place a policy to ensure smooth succession.
“What we don't like is the arbitrariness. IIAS commented on L &T earlier, when we said we want the company to put a policy in place, regarding the retirement age of key personnel i.e. chairman and executive directors. This can be 65, 70-75 or whatever. Then the investors know what to expect," said Amit Tandon of Institutional Investors Advisory Services (IIAS).
IIAS calls itself a full service institutional shareholder advisory company. It comes out with recommendations for voting in annual general meetings and advises institutions on governance issues.
“The board structure of L&T continues to be good, with nine independent directors and eight non-independent directors. Naik should have ideally become a non-executive chairman or chairman emeritus. At least the role has now been split, with Venkataramanan being appointed CEO and MD,” said Shriram Subramanian, founder and managing director, InGovern Research Services, a Bangalore-based proxy advisory and corporate governance research firm.
In August, IIAS had recommended against the reappointment of two independent directors, who were over 70 years of age. In voting recommendations, which came before the company’s annual general meeting, IIAS had pointed out that several directors were not getting younger and have had considerably long tenures on the board.
“Three whole-time directors are in their 60s, and two in their 50s. Of the independent directors, two are above 70 (S. Rajgopal, 76 and S.N. Talwar, 73), and the balance four are in their 60s. The two retiring independent directors have offered themselves for re-appointment although both have been on the board for 10 years (S. Rajgopal) and seven years (S.N. Talwar). Of the balance four, two have been on the Board for seven years (M.M. Chitale and Jagjeet Singh), and the balance two for less than five years,” IIAS had pointed out in its August report.
“Although there is no statutory limit on the age of directors, IIAS would like L&T to put in place a formal policy for the retirement age of whole-time directors, including the Chairman, as also non-executive directors. This should be consistent with other senior employees who are not board members. We expect that this will have a relation to the retirement age of the employees of the company,” the report said.