Listed firms need a Lakshman rekha

A company is a separate legal entity distinct from its promoters. The Sona Comstar episode shows how such incidents continue to test this framework

- DHANENDRA KUMAR

THERE IS a need for a "Lakshman rekha" between promoter legacy and corporate governance norms in listed companies. In order to have sustained trust of shareholders and investors, adherence to corporate governance norms, ethics, and transparency are essential. It ensures corporate compliance and investor trust and confidence.

The role of promoter families in establishing and nurturing a company is undoubtedly essential. Many companies initially derive their valuations from the promoter's legacy, later sustained through actual performance. While promoter's legacy is important, it cannot be a legal right to intervene in management. The law and shareholders recognise the company as an independent legal entity where corporate governance must be rooted in accountability, transparency, ethics, and fiduciary responsibility.

Last month, the unfortunate and sudden demise of Sunjay Kapur of Sona BLW Precision Forgings (Sona Comstar) unexpectedly laid bare intra-family tensions out in the open. Rani Kapur, his mother, raised certain concerns about the company's actions and also made objections to some board appointments. She also sought a deferral of the company's annual general meeting (AGM), citing various issues. However, legally and technically, there were little grounds for it.

The separation of ownership and professional control has contributed to the growth of global giants as well as Indian champions. Whether it is Infosys, HDFC Bank, ICICI Bank, Axis Bank, or Larsen & Toubro (L&T), professionally managed companies have consistently delivered returns to shareholders respecting governance norms and insulating business decisions from personal disputes.