Shareholders need to see the bigger picture

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First, Siddhartha Lal of Eicher Motors, and now, Shobha and Ekta Kapoor of Balaji Telefilms. Shareholders are making their opposition clear to salary hikes of top executives. It is important to keep a check on remuneration and perks of top executives but shareholder activism should not only be limited to this aspect. There are new challenges cropping up incessantly in corporate governance and shareholders have to ensure the company’s progress is not stymied by disagreements on compensation. The Vishal Sikka-Infosys episode reveals how such issues can distract a company from its steady growth path.

The role of independent directors in the board of a company can hardly be overestimated and since the 1990s, Sir Adrian Cadbury outlined their significance in ensuring proper corporate governance including formation of remuneration committees and audit committees. The Cadbury committee report can still perhaps add value if it is used as a template. He recommended that non-executive directors should form a majority of remuneration committees. He also was in favour of setting up audit committees with at least three non-executive directors. Needless to mention, the remuneration committee and audit committee are crucial bodies deciding vexatious issues in companies.

Independent directors have a major role in today’s corporate world and there are bigger fishes to be caught. Markets regulator Sebi has also dwelled on role of independent directors.

There needs to be a mechanism in place where the CEO or managing director is not able to get a free run as a result of being in cahoots with the majority of the board members. In unlisted companies, it is far easier for the top executive to get away with this practice. Shareholders play a pivotal part in the success of an enterprise and have the first right to object to decisions they feel will not benefit the organisation. But they also need to look at the bigger picture. With the pandemic changing rules of the game in many domains and competition intensifying, the boardroom of tomorrow will perhaps have to deal with more pressing issues.