Making a case for increasing the number of directors on the IndiGo Airlines board, especially the independent ones, proxy advisory firm IiAs has pointed out that the current board is “silent” and its “ability to protect the company from its promoters is limited”.
The firm has also criticised the promoters’ low engagement in board meetings, saying this is less than acceptable and a cause for concern. The promoters’ board meeting attendance was less than 40 per cent in 2015-16, according to IiAS. This improved only slightly to 63 per cent in 2017-18 as differences between the two factions began to simmer, despite the Kotak committee recommending a harsh criterion for reappointment of absentee directors. This shows the promoters controlled the business and the board had a limited role, IiAS says.
It points out that the related-party transaction issues raised by promoter Rakesh Gangwal might not be material, but stakeholders will be wary of giving IndiGo their money just yet — they will want to know who wins this battle before increasing their exposure. So, new aircraft purchases, engine replacements and any other material expansion might get delayed. Investors might not be as concerned with related-party transactions as with potential delays in value creation.
The proxy advisor has pointed out that expanding the board could allow the company to separate itself from the promoters’ dispute. With more teeth, the board would have held forth its view in the interest of the company and its shareholders, much like Mindtree’s committee of independent directors decided on the fairness of Larsen & Toubro’s offer price to shareholders in spite of Mindtree promoters’ hostile reaction to the acquisition bid. It points out that an expanded board with more independent directors would also provide checks and balances to the control rights that the promoters have embedded within the articles of association.
IndiGO promoters — Rahul Bhatia
of the IGE group and Rakesh Gangwal — are engaged in a pitched battle, with the latter questioning the former’s corporate-governance standards and raising relate-party transaction issues against him. While Bhatia has said his partner is looking for more control, which currently is vested with the IGE group.
IiAs points out that the allegations of due process not being followed in related-party transactions carries momentum, considering the construct of the IndiGo board and its board committees. Even so, there is another argument that they might not be material, given the size of the airline, and the annual reports (for FY16, FY17 and FY18) confirm that these were on an arms-length basis. The FY17 and FY18 reports also specify that the related-party transactions were reviewed and approved by the audit committee, as required by the company’s guidelines. But IiAS says that these facts are getting lost in the conversation from both sides, with each harping on its role in building the business and its brand. Had the board been expanded and it was more effective, the allegations would have been seen with more scepticism.