Stakeholders Empowerment Services (SES), a proxy advisory firm, has advised shareholders of Redington India Ltd. to vote against the appointment of VS Hariharan as the company's Group CEO.
In its note to shareholders, SES has cited that VS Hariharan has not served a cooling-off period of one year before his transition as Group CEO from an Independent Director. "Appointment as manager will raise questions over his independence in the previous term as Independent Director," the note said.
The proxy advisory firm has also cited other non-disclosures by the company as the reason behind its recommendation.
Redington India, a listed distributor of iPhone manufacturer Apple Inc.'s products for over a decade, is seeking shareholders' approval for the appointment of VS Hariharan as Group CEO for three years until September 2026, through an ordinary resolution. The company is also appointing Hariharan as "manager."
SES has made the following observations:
Rajiv Srivastava, the then-managing director of the company, resigned on August 11. VS Hariharan, independent director on the board since July 2012 and also the Chairperson of the Nominations and Remunerations (NRC) committee, resigned on August 23, 2023.
Hariharan also resigned as Independent Director with effect from September 1, 2023, stating that he is considering his candidature for the position of Group CEO. On the same day, he was appointed as Group CEO, commencing September 11, 2023.
"Now, it appears that he resigned as NRC chairperson to avoid conflict of interest as he himself was considering his candidature for the CEO position, then the question arises, why didn't he resign as independent director on the very same day?" SES observed.
"Wasn't his independence already vitiated when he resigned from NRC? Why wait till the actual appointment as CEO to resign as Independent Director?" the proxy advisory firm stated.
SES has cited SEBI's Listing Obligations and Disclosure Requirements (LODR), which states that "No independent director, who resigns from a listed entity, shall be appointed as an executive / whole-time director on the board of the listed entity, its holding, subsidiary or associate company or on the board of a company belonging to its promoter group unless a period of one year has elapsed from the date of resignation as an independent director."
It also cites Section 196 of the Companies Act, 2013, which states that "No company shall appoint or employ at the same time a Managing Director and a Manager."
The proxy advisory firm stated that Redington has found a "unique way" to bypass the SEBI LODR by appointing him as manager and not managing director. "Though the company may be technically compliant with the law, however, as per SES, the same is not in the spirit of the law," the note stated.
SES has also questioned why the Managing Director, the highest position of management in a company, was relieved the same day without serving a single day of notice period when even a permanent employee serves at least one month's notice to ensure a smooth transition.
"SES is unable to understand, how was the transition managed? Was the board already aware of the resignation? Was there any succession planning?"
Redington's response
In response, Redington India has informed the exchanges that the cooling-off period specified by SES is only applicable to whole-time or executive directors and not to other executive positions.
The company said that the Postal Ballot Notice mentions that VS Hariharan does not hold any directorship in the company or any of its associate or subsidiary companies. Hariharan has been appointed as Group CEO without holding any directorship.
"Therefore, the company is compliant with the requirements of Regulation 25 (11) of the SEBI Listing Regulations, which has also been acknowledged by you (SES)," the company said.
Redington also said that the resignation of the previous Managing Director was due to personal reasons and that the company's board continued to drive it forward while looking for a suitable candidate. During the same time, Hariharan resigned as NRC chairperson to avoid any conflict. "To speculate that Hariharan's independence was vitiated by mere candidature is unfounded," it said.
The company also mentioned that Hariharan was chosen for his extensive knowledge and experience in the distribution industry and hence was considered to be suitable to ensure business continuity and sustainability.
Shares of Redington India are trading 1.1% higher at 160.20.
(Edited by : Amrita)
First Published: Nov 20, 2023 9:35 AM IST
