Indian Hotels board violates exchange norms

Indian Hotels hasn't found new independent directors to fill in spots which were left vacant last year due to resignations

The Indian Hotels Co Ltd (IHCL), the owner of the Taj Group of Hotels, has been unable to fill up vacant board positions, leading to a violation of the listing agreement clauses. The Mumbai-based company, which operates in the mid-to-luxury hotel space, has not found new independent directors to fill in spots left vacant last year due to resignations.

As a result, the total strength of the board of IHCL has declined to 11 directors from 14 last year. One of the clauses mandates companies to have independent directors not less than 50 per cent of the total strength of the board if the chairman is a non-executive director.

An IHCL spokesperson said: “The board currently comprises 11 directors:  four executive and seven non-executive.  Five of these are independent, including Guy Crawford who was inducted recently as a non-executive, independent director as one step towards compliance. We are in the process of appointing a sixth independent director.”

 

Cyrus Mistry was appointed additional director on the board last year, designated as the non-executive chairman in place of Ratan Tata, who retired in December. The independent directors’strength on IHCL stands at 45 per cent  against 50 per cent required. Corporate governance and proxy advisory firm Stakeholders’ Empowerment Services (SES) stated: “As on date, the board has five independent directors, two non-independent non-executive directors and four executive directors. The chairman of the board is a promoter non-executive director. Clause 49(I)A of the listing agreement mandates that 50 per cent of the board should be independent in case the chairman of the board is a promoter director. Since only 45 per cent directors on the board are independent, the company is non-compliant with the listing agreement.”  

Further, the company has been non-compliant for more than six months, the period typically allowed for regaining compliance. A stock exchange can take disciplinary action, which includes suspension of trading against a company that fails to meet the listing agreement.

 

A detailed mail sent to IHCL went unanswered. Even though the clause 49C mandates companies to appoint a new independent director in place of one who has resigned or is removed from the board within a period of 180 days, IHCL has not appointed anyone in place of Anu Aga, the former head of engineering giant Thermax, who quit in June last year.

Shapoor Mistry, the chairman of Shapoorji Pallonji Group and eldest son of Indian-born Irish tycoon Pallonji Mistry, who was initially appointed as an independent director on IHCL's board, later was appointed the non-executive director from the promoter class.

Further, non-executive director and vice-chairman R K Krishna Kumar ceased to be a director of IHCL after reaching the retirement age of 75 this month. This pulled down the strength of the board further even as no replacement was named.

The SES report on IHCL also advises shareholders to oppose certain resolutions at its coming annual general meeting. SES has also asked shareholders to vote against the reappointment of Housing Development Finance Corp Chairman Deepak Parekh as director, since he has served for more than 13 years on the company's board.

SES has also recommended opposing the resolution to appoint Shapoor Mistry as director since Mistry is already on board of 11 public companies. "Considering that his low attendance at Board meetings held in the last three years, SES believes that his other time commitments might be impacting his performance as a director of the company," SES said in a report.

WEAK BOARD

* The independent directors' strength on Indian Hotels' board, the chairman of which is a promoter non-executive director, stands at 45 per cent for the last six months

* Companies must have independent directors not less than half of the total strength of the board in case the chairman is a promoter director

* In case of vacanices, they must be filled within six months, corporate governance norms say