News: Trust deficit leading to promoters holding on to companies


Trust deficit leading to promoters holding on to companies

Assocham surveyed 155 CEOs from both professional and promoter driven firms. Read on to know what it found.
Trust deficit leading to promoters holding on to companies

In survey findings released by Assocham, Indian promoters are reluctant to give up management control to the professionals. In Assocham’s CEO survey it found that majority of the promoters had promoter holdings over 50%, and even in cases where the promoter percentage holding was less, the promoters were unwilling to pass the control to the professionals.

"An overwhelming majority of 78 per cent of the 155 CEOs both from professional and promoter driven firms, answered in the negative when asked whether the promoters are willing to cede complete control of the corporate India to independent boards and CEOs", states the findings in the survey.

The primary reasons identified in the survey findings were the issue of trust deficit and family predominance. In the survey, sixty-seven percent of the respondent CEOs said that lack of trust between the promoters and the survey would arise even in cases where few of the promoters had taken the lead in handing over the reigns of their companies to professionals. And for seventy-five percent of the CEOs surveyed said that family dominance played a major part in preventing professionals from having a freehand in the organizations. 

In a press release, Assocham stated that in developed economies where the professionals run both the boards and the firms, it isn’t as if the promoters are completely disconnected with the everyday functioning and operations of the organization, but they the route followed is through institutional intervention. This could either be by having a strong regulator, or using tough disclosure norms, and having high standards of corporate activism and corporate governance.

Assocham’s Secretary General DS Rawat said, “One must give credit to Mr N R Narayana Murthy for continuing with his belief that Infosys must be run by the professionals despite the fact that the experiment has failed once.” 

The latest saga of Vishal Sikka’s resignation as the CEO of the Infosys did raise the issue of conflict of interest between the promoters and board of Infosys. Also, the case of the resignation of Cyrus Mistry ouster from the Tata Group, despite it being very different from the Infosys case, clearly shares similarity when it comes to promoters versus professionals.

However, as is inferred from the Assocham press release, the promoter driven business environment in India will have to change and ape the one that is currently present in the developed economies. But for this the transformation to happen, the promoter driven organization will have to develop a roadmap for itself. You can read more about that here.

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Topics: C-Suite

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