Questions raised on Shiv Nadar’s reappointment as HCL Technologies CMD
Bengaluru: Shiv Nadar’s decision to continue as chairman and managing director of HCL Technologies Ltd and the 72-year-old founder’s non-outlining as to when he intends to step down from India’s fourth largest IT services company, was enough to make some shareholders ululate when they voted over a resolution extending his term for a five-year period last month.
Significantly, this shareholder opposition on the twin issues of an executive continuing both as chairman and managing director and silence on retirement age, comes on the back of proposed sweeping reforms by the markets regulator Securities and Exchange board of India.
Last week, a Sebi-appointed panel made a series of recommendations, including making listed companies with more than 40% public shareholding to split roles of chairperson and managing director or chief executive officer, from 1 April 2020.
According to filings by HCL Technologies with stock exchanges, 13.185% of public shareholders who voted, opposed reappointment of Nadar as managing director. Public institutions and retail shareholders own 40.12% shares while promoter Nadar and family own 59.88% shares.
Unsurprisingly, Nadar’s reappointment saw approval by 96% of shareholders leaving only 4% votes against the resolution. A spokesperson for HCL declined to comment.
In addition to extending Nadar’s tenure, HCL Technologies asked shareholders to approve five other resolutions, including reappointment of an independent director and approval for buyback of sharers. The five remaining resolutions saw almost unanimous voting from all shareholders and for this reason, many believe some shareholders were unhappy with Nadar continuing as both chairman and managing director of HCL.
“There is merit in splitting the roles (chairman and CEO/MD) especially because a large majority of companies listed on the Indian stock exchanges are ultimately controlled by promoter groups. So, it will be rewarding for all shareholders as this chairperson is better placed to oversee the management and work without the conflicts that a managing director or other executives face,” said a chief investment officer of a US-based fund house, which is one of top-20 shareholders in HCL owning more than 0.35% shares. The executive did not want to be named.
Shareholders of HCL expressing their grief against the founder should serve as a reminder to captains of other listed firms, as it suggests that shareholders are not just content with good returns and the company reporting higher growth, but are now pressing the management to equally focus on best corporate governance practices.
HCL reported a 11.9% dollar revenue growth to end with $6.975 billion in revenue at the end of March 2017. Last year, HCL’s growth was higher than Mumbai-based Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd. Again, during this period, HCL shares outperformed BSE-IT index as HCL shareholders saw a 5.1% return even as BSE IT index fell 9%.
To be sure, at least one foreign proxy advisory firm, Glass Lewis & Co. LLC, urged to shareholders to vote against the resolution as it believed that Nadar was a non-retiring director and held both roles of chairman and managing director.
“…[W]e view an independent chairman as better able to oversee the executives of the company and set a pro-shareholder agenda without the management conflicts that a managing director or other executive insider often faces. This, in turn, leads to a more proactive and effective board of directors,” Glass Lewis wrote in a note shareholders.
“Further, this proposal is also seeking to make Mr. Nadar not liable to retire by rotation. We believe that periodic rotation of directors or executives is essential to bring fresh ideas and ensure long-term accountability in board or company oversight. In addition, we believe that shareholders should be entitled to review the service of executives periodically and provide their consent for the continued service. Therefore, we do not believe shareholders should support this proposal at this time.”