Gautam Singhania-Nawaz Modi tussle engulfs Raymond: Should the board step in?

A: These are unfortunate circumstances. Nawaz Modi has accused Gautam Singhania of domestic violence and that has resulted in an impact on the stock price. The events started in September, and we are now in November. The board has been silent till now. You could argue that there was a reason to be separated, it’s a personal matter, the daughters are involved, and there is a woman involved. Therefore, discretion is required. But we don't really know what the court has done or is thinking at this stage. I think now that it has begun to impact the stock price, it is incumbent upon the board to provide clarity on what is the way forward and what they see. At the very basic, the board now needs to at least provide some kind of assurance to shareholders that despite all of this happening, the company is still under reasonable control. Being silent is no longer going to help. So, I would argue that at this stage, all of this has become public. Nawaz Modi has gone public with these accusations. It has impacted the stock price. It is incumbent upon the board to articulate what it has done in terms of action and allay some of the fears that the market seems to have given this entire acrimonious situation.

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A: Ideally to look at a situation, the board should run an independent investigation. It should ascertain what the facts are, whether what Nawaz Modi is now talking about, there are links to it and there is a factual basis for all of it, what actually transpired. Based on that, they have to decide what is the cause of action. There are a couple of questions to answer. One, is this necessarily in line with the company's code of conduct? Two, assuming this is true, are they able to disassociate the brand from the problem? Third, what is the action or consequences of such behaviour assuming that this behaviour is true? So, it is not an easy task for the board, but at the end of the day, there has to be a kind of action that the board will take, which will also be a signal to the market in terms of what is considered acceptable behaviour, where does the board draw the line.

A: Ideally, with an investigation taking one side is really not necessarily the best thing. The board could ask both of them, for that matter, to step aside and put an interim CEO until the entire dust settles. To take it on one side and simply say Nawaz Modi should step down or set aside without the other side of implication, I think is a bit unfair or at least jumping to a conclusion. But I do agree that given the current situation, there is likely to be a concern in terms of the efficacy and smoothness with which the board will function or board meetings will be conducted and function. So, this is far more complicated in terms of --- it’s not isolated in terms of saying that this is a domestic matter; it has reached the company and both of them are on the board. Therefore, the board needs to step in. Logically, yes, maybe the board decides both of them to take some time off, so to speak, and they figure out how to settle this matter, and therefore separate the company from the problem.

A: Yeah.

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A: It does. In India, at least our experience has been that boards tend to be a little bit easier with promoters and the other professionals. But having said that, let's separate the two. If you separate the ownership from the management and say that he is effectively the CEO, then you have to ask two questions is your hands-on CEO goes to the plant every 3 days and knows the names of all the workers and all the supervisors, then yes it is a little bit more difficult to look at an internal position. But if he is a strategic head providing broad guidance, there are a bunch of professionals who are managing the business on a day-to-day basis, then the decision is a little less complicated than other ones. But the fact that he is a promoter does complicate matters, and it is now for boards to step up and say that this is where they will draw the line based on their investigation. Companies go through the whole dispute, whether it is a divorce, whether it is like legacy issues, siblings fighting, or families fighting. There are three things which tend to happen. One is that all of this becomes a distraction for the CEO assuming the CEO is a promoter. Second, there is effectively some kind of separation, some kind of parting or voting rights and that changes the voting pattern. Third, it could effectively change the risk appetite of the CEO after a split. So, it is definitely complicated. There is a divorce on the anvil and therefore, this entire situation will drag out for a little bit longer than we expect.