Indian promoters take back seat, prefer non-exec roles as scrutiny rises

Top firms asking professionals to run daily operations; experts say increased regulatory and shareholder scrutiny is making promoters give up their positions

Several Indian promoters are now quitting their executive positions in their companies to focus on non-executive roles. The latest to join the non-executive bandwagon is the Wadia group scion, Jeh Wadia who quit the position of MD in both Bombay Dyeing and Go Air.

Earlier, the promoters of Infosys, HCL Technologies, M&M, TVS Motor, Avenue Supermarts had  quit their executive roles in favour of non-executive ones. Legal experts say that though there is no legal requirement to quit executive positions by promoters, the increased regulatory and shareholder scrutiny is making promoters give up their positions.

The  market regulator, the Sebi however  has asked the promoters to split the position of MD and Chairman and several companies are implementing the advice, say lawyers.

"As Indian companies go global and  foreign investors increase their investment, promoters are under pressure to hand over the baton to a more professional management," said a leading lawyer - who is advising several groups on succession.

Take for example, TVS Motor announced on Marxh 25th  that Ralp Speth will take over as its Chairman of the Board replacing Venu Srinivasan, 68  by 2023. “We would like to have a chairman who can guide and mentor the company to be more driven, agile and work faster,” said Srinivasan.  

TVS has global aspirations after the acquisition of British iconic brand Norton last year and is developing its own premium motor cycling products.

Similarly, Go Air hired former Spirit Airlines   CEO as its Vice Chairman as it prepares to launch an initial public offer of shares. Jeh will remain on board.

"Except the holding companies, promoters are moving away from the day to day operations and handing it over to domain experts," said promoter of a large firm.

In the Aditya Birla group, all group companies are run by professional managements with the promoter, Kumar Mangalam Birla chairing the board. The idea is to keep a close eye on operations without overwhelming the professionals running the companies, said a group official.

Legal experts said several companies want to follow the Tata group model where the chairman of the group as well as respective companies are run by professionals and are doing well. "The bankruptcies of several companies since 2016 has shown that promoters running the operations can not be the guarantee of success. Many companies shut down or defaulted to loans as they did not change with the time or gave full independence to the professional managers and the results are there for all to see," said a lawyer.

"Though there is no one-size fit all formula for management, it makes sense for the professional management and the board to be vigilant and save the companies from changing external conditions," he said.

WINDS OF CHANGE

* TVS, GoAir, Bombay Dyeing, M&M promoters take a back seat

* Indian cos professionalising board, management

* Promoters prefer non-executive roles

* Increased scrutiny, foriegn investment reasons for change