Past connection between Tata Steel director and auditor irks proxy firm

SES asks shareholders to vote against PwC as auditor and its former chief as independent director

Corporate governance advisory entity Stakeholders’ Empowerment Services (SES) has objected to two resolutions put up by Tata Steel, regarding appointment of statutory auditors and an independent director, citing a past professional relationship. These are on the agenda for shareholder approval at the annual general meeting (AGM) on Tuesday
 
SES has asked shareholders to vote against resolutions to appoint Price Waterhouse & Co Chartered Accountants LLP, as statutory auditors, and to approve the appointment of Deepak Kapoor, former chairman of PwC India, as an independent director (ID).
 
A Tata Steel spokesperson declined to comment.
 
While there are arguments that Kapoor was part of PwC’s consulting division, housed under a separate legal entity and therefore not directly related to its audit firms, entities such as SES contend that corporate governance standards demand that top companies should adopt the best practices, beyond the written word of law.
 
“Kapoor has been associated with PwC for almost 40 years and was its managing director between 2007 and 2016. SES is of the opinion that, though appointment of PwC may not be in contravention of the law, the mere presence of Kapoor on the board of Tata Steel may have an adverse impact on the audit process and give rise to ethical issues. According to SES, recommendation of PwC as the statutory auditor is not reflective of good governance practice and may lead to conflict of interest issues,” it has declared.

The connection

• Deepak Kapoor was associated with PwC for four decades 
• Was MD of PwC between 2007 and 2016
• Was appointed as an additional director of Tata Steel on April 1, 2017
• Shareholders’ nod sought to appoint him as an ID 
• Shareholders’ nod sought to appoint PwC as statutory auditors for 5 years 

 
Further, the report said, Kapoor would lose his independence once PwC’s appointment was approved by the shareholders. “Technically as per law, he will qualify to be Independent till the time of passing the auditor’s appointment resolution but will lose his independence immediately after conclusion of the AGM, once PwC is appointed. Further, his appointment as a director on the board may give rise to ethical issues and have an impact on the independence of the audit process. SES recommends that the shareholders must vote against the resolution.”
 
The proxy firm asked the company to explain why despite these apparent issues, the company still chose to appoint PwC. “SES believes that in accordance with law, the matter of appointment of PwC as auditors would have been approved by the board and  Kapoor, being a board member, would have participated. Further, Kapoor would have in all probability disclosed his association. Even without his disclosure, the board would have been aware of the association, having considered his appointment on the board as ID. The company should have disclosed to shareholders that despite this association, why it is of the opinion that independence is not vitiated and why the company wants to appoint PwC as auditors.”