Saturday, March 10, 2012
L&T- The Myth of the "Independent" Directors
The hunt for succession at L&T is over. The Chairman has decided that he is the best and no one can replace him. He has perhaps laid the path ahead for all the continuing supine professionals in that company. L&T under the present Chairman is proof that professionally managed companies without any owner, are as bad as family owned companies, when it comes to governance. I recall a friend of mine having to quit one of the L&T subsidiaries because of ‘retirement’ age being sixty. However, this does not apply to the Chairman and directors. Wonder who made this relaxation? Yesterday’s announcement of the CMD post being split in to two is a joke on the shareholders. The Chairman has ensured continuance of his own tenure by another five years! A rubber stamp board of directors has enthusiastically approved this. In essence, the present CMD continues to be in the same position as before, till he reaches a geriatric age of 75. And bringing cronyism to the fore, he has picked up a 67 year old guy to be the “Managing Director”. However, the guy who is appointed to this position is appointed only till he completes age 70! The website of the company discloses that it has nine non executive directors. These are presumably respectable individuals who have been achievers in their fields. All of them have merrily approved this extension to the Chairman who was widely expected or believed to be in the process of appointing a successor. Obviously, he has found no one good enough to fit in his oversized shoes. The Chairman has in effect treated this company (an orphan with no one to answer to) as his personal fief. A sad commentary on professional management structure and shows the supine character of an ‘independent’ board also. Surely, the Board of Directors has some explaining to do. I wonder what kind of inducement was offered to them to approve this kind of a move. I will watch with interest the commission and other stuff that is being paid to the handful of executive directors (in FY 2010-11, a sum of Rs.70 crores was paid to them) and also relook at the stock options (the prices of options granted in the last ten years range from Rs.3.50 to Rs.600 per share) that keep getting gobbled by the executive “professional” directors. L&T is a company shouting for intervention in governance from the so called institutional shareholders. Unfortunately, LIC of India is the largest shareholder and will never do anything other than act in favour of the present Chairman. A Rahul Dravid knew how to retire. A Ricky Ponting had to be chucked out by the selection committee. Wonder if the Board of Directors of L&T have it in them to question anything at all. This company is prime example of so called “independent’ directors and their total uselessness in any board of directors’.