Hyderabad-based Natco Pharma Ltd and Chennai-based Thejo Engineering Ltd are the winner and runner-up of Moneylife Foundation's inaugural Corporate Governance Award. In an online function, M Damodaran, former chairman of SEBI (Securities and Exchange Board of India) announced the winner and runner-up from five shortlisted nominees. Five finalists for this year's award were: KPR Mill Ltd, Laurus Labs Ltd, Natco Pharma, Suven Pharma Ltd and Thejo Engineering.
Congratulating all the shortlisted companies, Mr Damodaran said, “What gives me the greatest happiness is that in a universe of companies, big and small, we do not have any of the usual suspects in the shortlist by Moneylife Foundation. This also shows, perception management lasts only for some time and then the truth takes over, like what happened in the case of Satyam Computers.”
According to the former chief of SEBI, companies stand or fall depending on their boards. “Size is not the real indicator but the kind of people that get into the board. If a promotor has courage to bring into boardroom people who can ask tough questions, no board will extract value from management and vice versa. Peaceful co-existence does not work in board rooms," he added.
Mr Damodaran also expressed anguish over introduction newer regulations for each delinquency by a company. He says, “Before new regulations are introduced, it must be analysed if better enforcement of existing regulations can address the problem. Before you write new regulations, do a cost benefit analysis and regulatory impact assessment. Most importantly all regulations must have a sunset clause, else you cannot take away redundant regulations. It should be done like what Reserve Bank of India (RBI) has been doing. RBI withdrew 104 regulatory instructions and circulars that have become redundant or were duplicated
as per the Regulations Review Authority's interim recommendation (RRA). Why this cannot be followed by all other regulators?”
“What Moneylife Foundation has done for recognising good corporate governance is a great first step. However, I would suggest you to have an award also for the best and most informative annual reports for companies. At present annual reports are full of complex sentences, and in a language that is difficult to understand for a common investor. Language is used to conceal thoughts, and we should identify people who do this. Communicating in simple language is important,” he says.
Mr Damodaran, also requested organisations like Moneylife Foundation to raise their voice against absenteeism in company board meeting by directors.
The former SEBI chief also raised important issue of representation of women independent directors on the company boards. “Are companies appointing women independent directors or independent women directors?
"There are only directors on a company, not man or woman directors. Are women being appointed on company board because of their talent or as tokenism? Most are doing it to just tick the regulatory check box. Some claim they are doing to give justice to talent of women, but why they took so much time to recognise the talent and board resolution,” he asked.
Accepting the award as Winner, Rajeev Nannapaneni, vice-chairman and chief executive officer (CEO) of Natco Pharma says, "Most investors look at quarterly performance. That pressure leads to decision making to please the gallery or force companies to make mistakes. That is what causes the mismatch. You cannot build business overnight it takes a long time. Therefore, it is important to change the quarter-on-quarter (q-o-q) narrative."
Dr Satyanarayana Chava, Founder & CEO, Laurus Labs also expressed the same sentiments. He says, “There is a dichotomy - investor wants quick returns. Management has to keep long-term interest intact. To align these things is a challenge and has to be balanced. Companies taking care of stakeholders with good corporate governance practices will be rewarded over long term.”
According to Prof VA George, executive chairman of Thejo Engineering, pillars of governance are values on which we build transparency, honesty, and concern for society. “I thank my parents for instilling the values in me. I thank knowledgeable investors and two founders and other stakeholders,” he says.
Debashis Basu, founder-trustee of Moneylife Foundation and editor of Moneylife pointed out, "while we are assembled here to give awards for the best and the second-best, let me make one thing absolutely clear. Each of these business leaders is equally exceptional in what they believe in and how they have lived up to their beliefs. They are all winners in my personal view and I am sure will be winners in the coming years," he says.
Explaining the selection process, Mr Basu said, "For starters, the initial shortlist was based on direct nominations from several famous investors, analysts, fund managers, and researchers, who in themselves would have comprised a top jury. The nominations themselves gave us, the jury a very filtered list of companies to start with."
"The nominations went through a rigorous qualitative and quantitative analysis by Gautam Bafna and his team at Wisdom Torch Consulting Solutions. They created the framework and evaluation template to judge these 35 companies under 11 major heads. The information collated by Wisdom Torch on each company was distilled, quantified, colour coded, and summarised into an easy-to-understand presentation for the jury."
The jury comprising R Balakrishnan (with vast experience in research, rating, investment, and fund management), Prof JP Singh (retired professor of IIM Ahmedabad), I, with our deputy editor Yogesh Sapkale as member-secretary, held two rounds of detailed deliberations to create a first shortlist of 11 from 35, Mr Basu said.
Analysts at Moneylife then did another round of search on Watchoutinvestors.com for any regulatory action the jury may have missed. JN Gupta, MD of Stakeholder Empowerment Services allowed access to their website for details on some of the companies that are tracked by the proxy advisory firm. This, Mr Basu said, helped the jury arrive at the final shortlist of five nominees, all of whom meet very exacting standards of governance.
"Just as bad governance with good financial performance is suspect, good governance without sustained long-term financial performance is of no use. As investors and analysts, we realise that wealth creation and good governance are not strictly correlated. Wealth creation depends a lot on sector tailwinds, an external factor. Governance, on the other, is wholly internal - how a company chooses to behave. This is what we have focused on," Mr Basu added.
TS Krishnamurthy, trustee of Moneylife Foundation presided over the Award function. In his address, the former chief election commissioner says, "The Indian stock market has dramatically transformed over the last two years since the COVID lockdown. Investors are looking for companies with a good track record and good corporate governance practices. This independent corporate governance award that is judged primarily based on objective criteria very timely and we hope that this award will become a benchmark over the years.”
The Award function was attended by several prominent personalities from all fields and included several investors, analysts, fund managers and researchers from across the country.
The Fabulous 5 of 2021
KPR Mill, started by three brothers from an agricultural family understand and empathise with the thirst for education and a better life. They run a very large, continuing educational programme for their employees especially women. More than 27,000 employees have benefitted from it. What is unique is that 200 of their own employees have been placed in the IT industry - a unique programme. It has also separately set up classes to coach students for the UPSC examinations.
The mantra of Dr Satyanarana Chava of Laurus Labs, a first-generation entrepreneur is 'winners never cheat, even in difficult times', the title of a book by billionaire businessmen Jon Huntsman of high integrity. His investors are convinced he lives by this dictum.
Natco Pharma is, of course, famous for bringing in low-cost medicines through patent challenges. We have also come across several heart-warming stories about the founder, including how he paid salaries to all employees by selling his own landholdings when the company was passing through difficult times.
Suven Pharma has always taken the difficult road of innovation, which can never succeed unless the business is run with impeccable integrity and honesty every single day. Both Suven and Natco have been frank in communicating to investors that revenues will remain uneven, given their unique business models.
Thejo Engineering, though listed in the SME segment of BSE, has set an extremely high standard, which emphasises transparency, accountability and integrity in all its business dealings, even at the cost of losing business.