April 5,2019:
Old is gold, goes the saying. Be it politicians or corporate czars, no one wants to retire, it seems. That is why some parties are forcibly retiring people over 75 by denying them tickets in the upcoming general elections and the same thought process is creeping into corporate corridors as well, slowly but surely.Employment of quite old and aged people as board members by the biggest Indian corporate houses (more so in family run businesses) is prevalent since forever. These promoters are supposed to play a significant part in decision making process and / or performance of business operations of a company.
It may seems Indian promoters are control freaks and they just don’t wish to retire or take it easy. Many (or most) of them would like to micro manage the affairs of the company till it’s time to leave for the graveyard.
The Securities and Exchange Board of India (SEBI) however, has a contrarian view on the state of affairs.
SEBI has recently issued a directive making it mandatory for every listed company (who has the intent of employing or continuing in employment of board members aged over 75 years) to procure the shareholders approval for employment of such board members.
The underlying objective is to ensure that no member will continue to be on the board of directors in perpetuity without procuring the consent of the shareholders. With the latest directive, Indian corporate sector may witness a change in board composition of certain listed companies.
As per the procedure, every company shall secure the shareholders consent via special resolution coupled with stating the reason for the retention of board member aged 75 years above.
With effect from April 01, 2019, most of the listed companies will be forced to modify the composition of existing board or else they have to procure shareholders consent to retain/engage board members aged more than 75 years.
Going forward, no listed company will have the luxury of retaining any board member aged 75 years or more without its shareholders consent.
SEBI directive could generate troubles for the family-run companies as such companies have developed the tendency of retaining the founding promoters as non-executive directors till the time of their demise.
As per the available data, some of the most reputed Indian companies (including Apollo Hospitals, Colgate-Palmolive, Reliance Industries, Glenmark, Berger Paints, Lupin, , DLF, Kesoram Industries, Emami, Century Textiles and Procter & Gamble etc.) have at least one of its member aged over 75 in the board of directors.
However, I feel that this retirement or phasing out of leading lights over 75 years of age could be a case of regulatory overkill – it should come voluntarily.
Despite divergence of opinions on the subject, the SEBI directive should be a welcome measure as it guarantees that no company will retain/appoint persons of 75 years age as board members against the will of shareholders.
Those over 75, you may take it easy now, slow it down and play it cool. Give the youth a chance.
