Eicher crisis shows governance matters

The vote to consider and approve re-appointment of Siddhartha Lal as managing director of Eicher Motors for a period of five years and payment of remuneration with a 10 per cent pay hike did not pass with requisite majority shows shareholder activism and corporate governance matters, said law firms tracking ESG compliance in listed firms.

ESG's Social criteria examines how a company manages relationships with employees, suppliers, customers, and the communities where it operates while Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

"Interestingly, the nomination & remuneration committee, which consists of three non-executive directors which includes two independent directors, had reportedly approved the reappointment of Siddhartha Lal at the increased salary in February 2021," law firm Nishith Desai Associates said.

"Out of total votes cast, 73.04 per cent voted in favour and about 26.95 per cent voted against the resolution proposing higher salary for Lal. On further examination, it appears that a large number of public institutional shareholders of the company did not vote in favour of the special resolution on the grounds of a proposed increase in remuneration at a time when sales of the company’s products and overall operational performance have remained subdued," Nishith Desai Associates said.

"The inability of this resolution to garner sufficient majority only goes to demonstrate the increasing power of shareholder activism and governance," it said.

"The emerging Environmental, Social and Governance (ESG) mandate in corporate governance presents a new challenge for companies in India. A stakeholder driven approach must be fine-tuned to suit the stakeholders with whom a company interfaces," the law firm said.

A solution to the Eicher issue may be to engage with the stakeholders and arrive at a mutually acceptable way forward, the law firm said.