Zee’s independent directors did not take independent views: IiAS founder Anil Singhvi

A: This was a painful thing to notice that the directors, particularly independent directors, did not execute their primary job as fiduciaries of the shareholders. In this case, Manish Chokhani and Ashok Kurien both miserably failed – first in the audit committee and then in the NRC (nomination and remuneration committee). Both these committees comprise experts. We see that independent directors did not take independent views.

In the audit committee, there were many related-party transactions that were not above board. But Mr Chokhani, who is an ex-investment banker, did not raise the right questions… Our question is whether they were really protecting the minority shareholders. In fact, today, we believe that the board committees are the expert committees. And that’s where the problem lies – many times these committees are against so-called independent directors.

Our own observation that we sent to the company revealed that the directors did not investigate the arm’s-length transactions and related-party transactions, which favoured the promoters. This did not go well with the large number of shareholders. When we engaged with them, they were always questioning these two directors.

And then came the NRC – the decision of the NRC to increase Mr. Punit Goenka’s salary. I think the point to be noted is very clear that the NRC members are supposed to look at the CEO’s performance, performance of the company and importantly enough, how the CEO is compensated compared to the rest of the team. I would like to assert this point that both these members did not do their job well. They should have checked the salary levels of others and the raises given to them. They should have checked how the company performed and how it failed to create value for shareholders.

And over a period of time, you see how Zee, one of the finest companies we have in terms of the platform and what they do, was unable to create shareholder value due to two factors – a) related-party transactions – huge amount of transactions used to take place between Zee and other promoter-driven companies, and b) Mr. Goenka, who is still running the company, but there was no action taken by the board to professionalise the management team to see that shareholder value is unlocked. These were factors that made shareholders think about whether these people’s presence should be continued. We found merit in shareholders’ concerns… I am glad they stepped down because there was enough evidence that they would be voted out.

Q: Which way is this likely to go now? With the institutional investors’ efforts to push out the promoter, are we looking at the appointment of a professional MD or perhaps a potential stake sale by these institutional shareholders? Or should we be ready for a third scenario?

A: There is a bit of a dichotomy here – it is a beautiful company, one of the best companies in the Indian media sector, but it’s very poorly managed and very poorly run. So, if there is going to be a change in the top management, I’m sure shareholder value will be unlocked in a big way. And that’s what perhaps Invesco will do because they waited and, in fact, they have given a fairly good chance to the management team to professionalise the system to create value, to look at various options, including the sale of the company to someone who can create a much bigger platform and add value.

But having failed at this completely and having seen this kind of board, which is compromised on every decision of the company, I think it will be very important to see how Invesco, the largest shareholder, gets some good people on the board and appoints a professional CEO… The Goenka family should be happy that the value of their 4 percent shareholding is up by over 30 percent today – just by this one action that existing directors should be voted out and new directors should come in.

Ultimately, at the end of the day, every shareholder including the promoters, should look at wealth-creation as their goal... If someone else can create much better value, then take a back seat and allow somebody else to drive the company. I suppose Invesco is going to do that.

Q: Now that the key concerns have come to light, the new management has its task cut out…

A: The first and the foremost thing to note will be that they are the fiduciaries, they should be looking at all stakeholders, rather than just looking at promoters. I’m sure the new appointees will take a cue from why the older set of directors were shown the door and they will work to create value. They need to assess whether the same team can generate much better value, whether the company should be sold out or whether some new strategic investors should come in. There are various options.

But that whole debate will be dispassionate without looking into the aspect that “Oh, who should be the owner?” Because I think we are still suffering; the board, most of the time in India suffers from a very, very feudal mindset, the feudal mindset of zamindari. And I think this whole business of zamindari is gone. Now, one has to look at what is the real purpose of this company, how it can create value for all shareholders, not only one set of shareholders, and secondly, paying this huge amount of money to the promoters or the family or the promoters. This should be a thing of the past.

Every board should measure whether he or she is the right person to run the company and how that person should be compensated. One should get on the comparative chart and if NRC can’t do it, get some good consultants. However, many times directors don’t rise to the occasion, and instead they try to clap for the promoters.

So I think the new directors, new set of people will take a cue from what has happened at Zee and I think today their shareholders have really given the thumbs-up following this entire episode. Going forward, I'm sure the new board will be cognizant of the fact that those who did not create value or those who don’t believe in creating value were shown the door.

Q: Zee did make some efforts post the challenges of 2018-19. It reinvented itself, cleaned up its books, improved financial disclosures and reduced the promoters’ stake to 4 percent from 41.6 percent in 2018. What more do they need to do to win back trust and create shareholder value?

A: The promoters with their 4 percent shareholding – I would call them a significant holder of the stake in the company – today the markets have shown that if they are not there, then the stock will run much better.

Whatever steps they took in the past two years did not create shareholder value. And today, when this notice has been served for the directors to be removed, the share price has soared. Always believe that shareholder value is what the valuations are showing up. There’s no other value which you can attach, there is no other emotion which you can attach than the emotion when share prices go up or come down. So I think the litmus test for every listed corporate is the share price. As some very astute investor in India said, “Bhav bhagwan, baki sab bakwas.” Today it is proved beyond doubt that Bhav is Bhagwan.

Q: With this, are we finally looking to an end to governance concerns and perhaps better days ahead for the company with a possible change in management?

A: Well, I wouldn’t say the company ever faced much of a problem. If you take away the related-party transactions and if you take away the fact that the promoters were hugely leveraged, then we didn’t face a problem. The shareholding came down not because they infused more funds into the company but diluted the fact that these shares were pledged. The promoters chose to get into many newer fields for a variety of reasons and that was the reason that many related-party transactions were not above board and finally they had to pledge their own shares...

I’m sure Zee will create tremendous value for shareholders and for the family as well so long as they own 4 percent or 5 percent. I’m sure things will be sorted out well. The new board will learn some lessons from the past mistakes and take a corrective course and create value.

Q: This is not the first time when shareholders have shown the exit doors to promoters for alleged wrongdoing. What cues can other companies take from this episode?

They should know that the days of shareholders demanding – and demanding in a very short period – are rising. It’s much better that before they are named and shamed, they must put their house in order. If they can’t do that and they think that they are not capable of being on the board, I think I would ask them to retire, live happily, rather than go through all this kind of trouble and be named by the media for not having created value for shareholders.