Several independent directors serving on the board of McLeod Russel India have quit citing health and old age. However, they continue to serve on the boards of other companies. The trend has been red-flagged by corporate governance firm Stakeholders Empowerment Services (SES), which has called for more accountability from independent directors.
Over half a dozen individuals have resigned from the board of the tea company citing reasons such as "old age", "severe health issues" and "poor health". At the same time, almost all of the directors continue to hold their directorships at other companies, while some have even taken up fresh assignments.
"With respect to the resigning independent directors, especially the ones that took up new directorships post resignation from the company, SES is of the view their action of holding onto other directorships as well as adding new ones to compensate for the loss in their usual "basket" or "quota" of companies caused by their resignation, is a clear case of shopping for companies," governance firm wrote in a note. SES has said certain directors are jumping ship from companies undergoing trouble to those in better shape for personal gains. "The above directors have failed shareholders and failed to carry out their fiduciary duty.”
Shares of McLeod Russel have crashed more than 90 per cent in the past one year.
Independent directors quitting weak companies aren't a new trend. However, to bring in more accountability, the Companies Act and market regulator Securities and Exchange Board of India (Sebi) have made it compulsory for directors to furnish reasons for quitting. Also, they have imposed a cap on the number of directorship an individual can take.
Governance experts say strict action may be needed against directors who are merely following the regulatory requirements in letter but not in spirit.
"SES wonders if the reasons such as health issues, time constraints and old age were merely an excuse to bail out of a company whose financial health is currently in limbo," the note says.