Suzlon Energy Board Should Come Clean On Independent Director Resignation
No one knows the veracity of the situation. At first, Mr. Marc, while resigning from the board, owed a duty to provide a better picture of what actually is lacking in the Management or Board, and not just throwing open-ended governance issues
Suzlon Energy Ltd (‘Suzlon’), via a stock exchange announcement dated 8 th June, 2024, intimated resignation of an Independent Director (ID) i.e. Mr. Marc Desaedeleer, from the Board of the Company, who had addressed ‘Corporate Governance Issues’ in his resignation letter.
Suzlon has been attracting negative news for the last two days. Reason, resignation by an ID? Not at all, but the reason given by the ID in his resignation letter which is creating noise as well as news. Quite often one hears questions on the efficacy of law related to independent directors. Arguments converge on a single point, whether Independent Directors (ID) are really independent? A counter question accompanies all such discussion as to what determines independence? Many perceive that IDs are more of a yes-man than independent. Such a notion or opinion about IDs mostly emanates from the misconception that opposing others is a perfect test of independence. Such theories or mindset are on account of failure to understand and appreciate the role that a director plays, whether ID or otherwise.
A board has to act cohesively, without any silo. Whatever may be the title; ID, NonID, Executive or Non-Executive, all board agendas have to be evaluated objectively without any self-interest and keeping in mind the value of the company and the stakeholders. It cannot be a case that only IDs are interested in maintaining or creating the value and others, especially promoters are not?
However, there could be cases, where a conflict of interest situation is created and IDs and other board members have to raise the bar of governance. Since commencement of Companies Act 2013, a decade has passed and one has seen very few cases where IDs have spoken publicly against any company or board. This is obvious as one does not want a boardroom to become a battlefield and expect daily fireworks. However, whenever any salvo is fired by any ID, it creates a disproportionate attention, just because it is rare. And the Suzlon case is indeed rare. Mr. Marc Desaedeleer, an ID on Suzlon board, resigned effective from 8th June 2024. What was different was that unlike 100s of IDs resigning citing pre-occupation, personal reasons or pursuing different things in life, Mr. Marc deviated from citing mundane or rather inane reasons and probably decided to take bull by horn or bust the myth of “All is well”. In his resignation, Desaedeleer said there were several situations where the corporate governance standards applied by Suzlon Energy did not meet his expectations including situations where communications lacked the level of openness and transparency he would have liked to see. Desaedeleer said he did send a note to the company covering the situations with the hope the information could be used in a constructive way
One doesn’t know what is there in his letter, except that in an investors’ call held a day after the resignation, management assured that there is no financial issue involved, most of the issues relate to procedure. This clarification is neither here nor there. However, Mr. Marc has placed three sets of people in the firing line and to answer questions. First and foremost, Mr. Marc himself. Mr. Marc has been on Suzlon’s Board since 1st April, 2012 and his term was to end on 24th September, 2024, a mere three months away. While there is no attempt to shoot the messenger, yet questions arise as to how come sensitivity about corporate governance suddenly arose, while it was subdued for the past 12 years? Or is he able to speak only when he is ineligible to seek reappointment after two terms as ID? Or the issues have emanated only last week? The interesting point is that he has stated that he was very pleased with operational and financial performance. Lastly, if anything is materially wrong, is he not culpable as well under the laws, indicating that either his allegations are non-serious or he has taken a calculated gamble, given that he is 73 years old and given the trend chances of his appointment elsewhere may not be that highest, unless it happens to be a competitor which can use his experience as well as inside knowledge to great advantage?
While the other entities in industry would refrain from having somebody on the board who is ready to take bull by horns, Suzlon’s competitors might see a favorable position considering his association in Suzlon. Next in line of fire will be all other board members individually as well as collectively, as to why and how they could not see what Mr. Marc saw, unless they maintain that ‘all is well’. They have a duty to tell whether the board atmosphere is such that IDs are not having courage to speak up till fag end of their term or they are not in agreement with him. It is not a case that the Board is full of novices, on the contrary the Board has experienced people who can tell the difference between chaff and grain in no time. Investors expect at least this favor from the Board, especially from IDs.
Lastly it is the management, which needs to come out clean and in a transparent manner. Transparency like sunlight is the best disinfectant. Management does not need to hide behind by issuing statements in hi-fi Oxford English, but unequivocally accept if there are any shortcomings. Why shy away when there are no frauds? Investors are all aware that Suzlon has been in a mess or rather deep mess and it is a miracle that it has come out of the woods. Objective of corporate governance is not corporate governance per-se but using it to create value for shareholders. Just like a patient who has just come out of ICU, one does not expect a 100 meters sprint next day, similarly when a company comes out of the woods, one cannot expect that overnight governance will be best in class, although it does not mean that sincere efforts should not be made. It cannot be an excuse that I will not do (although can) because I was in ICU. There might be a case, that Mr. Marc, who had been on the Board at the time of all the mess at Suzlon, was promised by the management of a transparent and well-versed governance structure; but after settling all the major issues, he is not seeing any improvement by the management, despite facing such collapses? No one knows the veracity of the situation. At first, Mr. Marc, while resigning from the board, owed a duty to provide a better picture of what actually is lacking in the Management or Board, and not just throwing open-ended governance issues.
The Board and Management must on immediate basis come out in open firstly assure that there are no noncompliances. Thereafter, release clarifications/ answers for public consumption on issues raised by Mr. Marc and a road map to tackle shortcomings, if any. After all, the job of the Board and the Management is to protect value for shareholders. Lastly it will be a test case; whether one should accept outpourings of a director who resigns at fag end of his tenure as a gospel truth or spiced and salted snack.
Guest Author
is the former Executive Director, SEBI. After retiring from SEBI, he co-founded Stakeholders Empowerment Services (SES), a not-for-profit proxy advisory, corporate governance & ESG research company. He has over 44 years of diversified professional experience in the public and private sector and is a former Executive Director of Indian securities market regulator SEBI (Securities and Exchange Board of India). Mr Gupta is a B Tech (Electrical Engineering.) from IIT Kanpur (1977), CAIIB (1984), and Certified Financial Analyst, ICFAI (1991). He is a member of International Corporate Governance Network (ICGN).
