| 'Independent directors must review royalties' |
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Royalty payments are increasingly becoming a corporate governance concern in Indian companies. Increases in royalty payments aren't justified by the companies. Royalty payment also reduces the distributable profits of a company and results in unequal distribution of wealth between the majority stakeholder and minority investors. Another concern is the role of the board of these companies as the sole authority to approve such increases in royalty payments, with minority shareholders having no say in such matters. Given current shareholding structures in Indian companies, even if such proposals were put to vote as an ordinary resolution, it might not serve the intended purpose from a governance point of view. Material relatedparty transactions such as royalty payments should be put to vote only among minority shareholders and controlling shareholders ( such as foreign promoters) should be barred from voting on such resolutions. What should be the role of directors in royalty issues? The independent directors of ACC and Ambuja took a prominority shareholder stance. Do you think this is absent in other boardrooms? There is an urgent need for independent directors on Indian boards to play a larger role in reviewing and approving related party transactions such as royalties. Currently, it is not clear whether directors seek any input or question the reasons for the increased royalty payments in such companies. Board structures of many MNCs in India are not ideal, with many conflicting directors and even solicitors and advisors occupying roles of chairmen in audit committees. All related party transactions within group companies should mandatorily be approved by the audit committee comprising only independent directors, and these should be disclosed publicly to all shareholders. Increasing royalty is well within the government's norms. Why is this an issue for minority shareholders? The government of India's norms on royalty payments to foreign promoters coming under the purview of the Foreign Exchange Management (Current Account Transactions) Rules 2000 (' Rules') were primarily intended at foreign exchange control and sis not deal with any issues related to minority investor concerns. The rules were amended in early 2010 with the intention of fully liberalising royalty payments without any ceiling and bringing all such payments under the automatic route. However, these rules do not deal with governance- related concerns for minority shareholders arising due to foreign promoters unjustifiably increasing royalties from their Indian entities. Unlisted subsidiaries of MNCs can pay as much royalty as they want. However, as long as companies are listed, increasing royalties creates unequal distribution of wealth. You are advising Indian institutions on voting on these issues. What should be the strategy of Indian institutions on these matters? Institutional investors should engage actively with their portfolio companies and raise the royalty payment issue with companies. SHRIRAM SUBRAMANIAN Founder & MD, InGovern In recent years, there has been a spurt in multinational companies (MNCs) increasing royalties from Indian subsidiaries. SHRIRAM SUBRAMANIAN, founder and managing director of InGovern, a proxy advisory firm, advises institutions with exposure to Indian companies on how to vote on company resolutions. In an interview with Dev Chatterjee, Subramanian says minority shareholders in India are ripped off by MNCs increasing royalties. Edited excerpts: |
| Sebi to start product labelling for MFs soon |
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Kolkata, 2 February The capital market regulator, Securities and Exchange Board of India ( Sebi), will soon introduce product labelling for mutual funds to make investors aware of any risks associated with it. "Product labelling is an important investor education agenda for Sebi. The scheme profile will be given very shortly and finally it will be with colour codes," SV Muralidhar Rao, executive director of Sebi, said today. Rao said another important agenda on the Sebi scheme of things was to spell out a long- term policy on mutual funds. Sebi will shortly bring out a long- term policy on mutual funds. That will be basically a taxation issue. The board of Sebi had approved idea of a long- term policy last year. " We are going to deliberate it at the mutual fund advisory committee," Rao told reporters on the sidelines of a seminar here |
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Company Secretary, Chennai
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