Is Rajendra Ambalal Shah India’s most misunderstood independent director?
Shah attributes his ability to juggle between different roles to the very functioning and structure of multinationals
Mumbai: Rajendra Ambalal Shah is 84 years old. He is an independent director on the board of 10 publicly traded companies. On some boards, he’s been there for three decades, and, in the case of a few others—over half a century, according to data compiled by proxy advisory firm Stakeholder Empowerment Services.
The data is derived from a sample of top 400 companies by market value. The data, arranged in the order of Shah’s tenures as director, throws this up: Procter and Gamble Hygiene and Healthcare Ltd—51 years, Pfizer Ltd—50 years, BASF India Ltd—47 years, Godfrey Phillips India Ltd—46 years, Bombay Dyeing Manufacturing Co. Ltd—36 years, Deepak Fertilisers and Petrochemicals Corp. Ltd—36 years, Abbott India Ltd—33 years, Colgate-Palmolive (India) Ltd—32 years, Lupin Ltd—10 years and Atul Ltd—10 years.
Shah’s association with so many blue-chip firms for long tenures throws up a palpable question: who’s Shah?
He is a senior partner at Crawford Bayley and Co., one of India’s oldest law firms. He joined the company 50 years ago as an assistant earning a measly Rs.200 a month. Over the years, he has risen through the ranks. His expertise in corporate law and litigation has made him the go-to guy in corporate circles, particularly among multinational companies.
Here, it will be fair to ask a few questions.
Can Shah really be independent? With that kind of tenure (30+ years) across boards of so many companies; he might well be an insider. So how can he protect interests of minority shareholders? To be sure, Shah also doubles as an adviser, even as solicitor, while being on the board of a company, something which experts say can lead to conflict of interests.
At the office of Crawford Bayley, in Fort, Mumbai, Shah hasn’t taken very kindly to the questions. Head bent over the printout of the questions; he begins talking, softly, the moment we take our seats opposite him. He doesn’t look up; his eyes are fixed on the paper.
“It’s a misapprehension and a misnomer that an independent director’s independence gets eroded if he stays for too long. Independence is a state of mind,” said Shah.
He attributes his ability to juggle between different roles to the very functioning and structure of multinationals. Unlike an Indian company, where the involvement of an independent director is high and his role onerous, multinationals are very professionally managed and very much regulated, through lots of internal controls, said Shah.
“Therefore, the role of an independent director becomes rather limited. So it’s not a herculean tasks to preside over the board meetings. The task is greatly facilitated because of these various controls,” says he.
The only other person with a tenure as long as Shah’s is Pradip K. Daga, who has been on the board of Century Textiles and Industries Ltd for 52 years. While Shah may well be the oldest and longest-serving independent director for the maximum number of firms in India, and Daga the one with the longest tenure, there are half a dozen others who have been there for more than four decades, around eleven for more than 30 years, and 40-odd for more than 20 years, shows the data compiled by Stakeholder Empowerment Services.
The new Companies Act limits the tenure of independent directors to two terms of five years each. But this came into effect only in 2014, which means that someone like Shah can possibly stay on until 2024.
The act also restricts the number of directorships anyone can hold at a time to seven. The idea behind the new rules was to ensure that the so-called independent directors remain truly independent and do not become too close to company managements.
Though the tenure of the aforementioned independent directors conforms to the guidelines of the new Companies Act, which came into effect from April 2014, the long association of the directors who, over a period of time, have gravitated towards becoming a ‘company insider’, dilute the spirit of the law, experts say.
“Fifty years on the board of a firm is too long and it’s only fair that there’s a fair representation from minority shareholders,” said Mahantesh Sabarad, deputy head of research and equity at Mumbai-based brokerage firm SBICAP Securities Ltd.
A firm would have gone through massive changes not only in its scale of operations but also in its capital structure. “So how can the same person continue to represent the interest of all the stakeholders adequately?”, Sabarad points out.
J.N. Gupta, founder and managing director of SES, said the law recognizes that 10 years is an adequate tenure. “Beyond this, the independence gets impeded,” he said.
The long association, he added, brings up two issues—the person who serves for so long has already lost his independence; and it deprives the board of fresh thinking and the board continues to be guided by the wisdom of the same person.
On the contrary, Shah believes, certain intellectual abilities are acquired over a period of time and gains through experience. “Your assumption that a person becomes less qualified with the passage of time is incorrect,” says Shah, citing the instance of Keshub Mahindra. “He was on Bombay Dyeing’s board for more than 50 years. He retired at the age of 90, couple of years ago. But he had a razor-sharp faculty,” Shah points out. Therefore, you can’t paint everybody with the same brush. “The quintessence of an independent director is integrity.”
SBICAP Securities’ Sabarad also highlights cases, such as Shah’s, where independent directors have business links with companies whose boards they serve on.
“The fact that business interests are tied to the firm is all the more dangerous,” said Sabarad.
But Shah says “it’s all about personal integrity”. He says he is a solicitor to listed companies and hence has a vested interest in protecting these companies. But quickly adds, “Stakeholders—minority ones, come before the company and they (company) appreciate (this).
How do you tread the fine line?
Shah: I ask my conscience...is it fair to the widows and pensioners who form a bulwark for the majority of publicly listed companies? I have to protect their interests.
How do you distinguish between your role as an independent director and strategic adviser to the company?
Shah: In the legal firm, we do the nitty-gritty, drafting of agreements, resolutions and structuring of a company, litigation and arbitration. Participation in the board meeting is for strategic decisions.
You are also on boards of competing companies; Lupin and Abbott, Colgate Palmolive and P&G... doesn’t it lead to conflict of interests?
Shah: I don’t get involved in day-to-day matters. There is no conflict of interest. It’s a very strategic role.
Finally, he justifies his case by relating an anecdote.
Some four years ago, BASF India came up with a proposal that the parent company of the multinational should be paid a royalty that amounted to 30% of the pre-tax profit. As an independent director on BASF’s board, Shah opposed the proposal. The fact that he had been a director of that company for a long time equipped and qualified him to say, “am sorry, am not a party to this. I am supposed to protect the interest of all the stakeholders—I don’t think this is fair to minority shareholders,” said Shah.
The meeting was postponed and subsequently, the royalty was brought down to 10% from 30%.
“The length of service doesn’t mortgage your conscience, freedom and sense of independence,” says Shah, as he looks up to conclude.
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