An `issue' in corporate governance

D. Sampathkumar

IT WAS inevitable that a shared belief in the virtue of staying single should place Mr Ratan Tata and Mr Lalit Mohan Thapar (LMT) of the Karamchand Thapar group, at the centre of media speculation over the successors to their positions as heads of their respective corporate groups.

Mr Tata's situation, of course, is not something new. It is very much part of corporate folklore since JRD Tata chose his nephew, back in the 1980s, to succeed him as head of the Tata empire. For some time now, the media has been talking of someone currently based in the US and sporting the famous Tata name as his possible successor. But the case of Mr Thapar is somewhat different.

The investing public had, for some time now, been given to understand that the issue of a line of succession at Ballarpur Industries (BILT), the group's flagship company, had been settled. Two of LMT's nephews, Mr Gautam Thapar and Mr Vikram Thapar, had earlier been elevated as Managing and Joint Managing Directors respectively.

But now comes the news of an `amicable settlement' (as the announcement from the family put it) on a reorganisation of managerial responsibilities among family members within the group. LMT gets back Ballarpur Industries (BILT) and its associate company Andhra Pradesh Rayons. His three brothers get to manage different sets of companies forming part of the group.

Going by the spirit of the understanding within the family and the clear demarcation of companies along family lines, a question must necessarily arise about the future role of the younger Thapars now occupying top slots in BILT. Would Gautam and Vikram go back to managing the group of companies assigned to their respective branches of the Thapar family? The logic of division suggests that that, indeed, would be the case.

Mr Vikram Thapar is slated to go back to managing the family's predominantly Calcutta-based coal business and the agribusiness interests, while Mr Gautam Thapar and his brother must, on the face of it, assume responsibility in some of the group companies under his branch of the family engaged in the chemicals, electricals and starch businesses. In fact, some indication of the denouement on these lines is available in the top management changes in another group company reported in the press some months ago.

It was reported that Karan Thapar, belonging to the Brij Mohan Thapar family, quit the board of Greaves and, in his place, both Samir and Arjun Thapar, belonging to the Man Mohan Thapar branch, joined the board. That Greaves happens to fall under the Man Mohan Thapar family in the new dispensation is not without significance.

That, of course, brings us to the question of whether the market is being informed of these changes long after the internal agreement has been arrived at. But that is a different issue altogether.

If the latest internal arrangement puts Mr L. M. Thapar back at the centre of Ballarpur Industries and its associate company Andhra Pradesh Rayons, and if the departure of the two nephews is imminent, as seems likely, the succession debate cannot be far behind. Fuelling speculation in this regard is the announcement made some time ago that BILT recently nominated Mr R. R. Vadhera, Executive Vice-President and Chief Executive Officer of the paper division.

Could it be that BILT now gets a professional director to look after the day-to-day management, with Mr LMT heading the board as its Chairman? There is also another possibility. The future control of BILT and its associate company might well go the Brij Mohan Thapar family after Mr LMT. Certainly, the division of assets between the families suggests that the B. M. Thapar branch has come out poorly in terms of their share of assets in the group companies.

The book value of companies under the M. M. Thapar branch, for instance, is at least Rs. 500 crore more than the value of companies identified with the B. M. Thapar group. The eventual transfer of control of BILT to this branch would restore that balance. But, all in all, the investing public would be justified in wondering if the last word had been said on the succession issue at the BILT.

But the issue of a successor to Mr L. M. Thapar as a consequence of a family settlement is not a matter of public importance. Nor, for that matter, is the fact of an agreement among the second generation Thapars over division of family assets. But the announcement itself raises important issues of corporate governance. The report on the family settlement was carried as a joint intimation by the four Thapar brothers, to the stock exchanges where the group companies' shares are listed.

It is a little mystifying how the event of a family reconciliation could be a matter of interest to a stock exchange, even if the family in question happens to be one with extensive business interests. A stock exchange can only be concerned with changes on the board of individual companies listed with it. The announcement, as made, falls short of intimation of any concrete changes in the boards of individual companies.

Second, the announcement speaks of an understanding on distribution of managerial responsibilities of group companies, within the family. The management structure for a company is something only shareholders can decide on. The promoters, in this case the Thapar family, may well control a majority of the outstanding stock in companies within the group.

Even so, it is only proper that the elements of agreement, insofar as they relate to appointment and resignation of directors, be settled in the forum of a shareholders' meeting rather than by way of public announcement of decisions arrived at in family conclaves. Directorships and management control that such positions on a board imply are not family fiefdoms to be distributed based on internal consensus among the principal shareholders.