The bitter family squabble among the members of the KK Modi clan is expected to come to a head on 6 September 2024 at the annual general meeting (AGM) of the flagship company of the family, Godfrey Philips India Ltd.
Among the resolutions up for voting is the renewal of the term of chairman and managing director of Dr Bina Modi, the appointment of her daughter, Charu Modi as an executive director, and a contentious one, the removal of Samir Modi, the son of Bina Modi, as a director of the company.
The charges and the counter-charge of assault and unbecoming behaviour between the two sides has been regularly reported in the media and it is not repeated here.
The crux of the issue is the power struggle between the mother and the son to wrest control of the company that has a market-cap in excess of Rs32,000 crore.
The Modi family has a strong grip on the company with a shareholding of 47.43%, and a single promoter entity holds about 30%.
Whoever among the family members is controlling this entity will call the shots in regard to the shareholding of the family.
Given how the events have unfolded, there is good reason to believe that Bina Modi controls this entity.
The remaining 17% of the promoters’ holding is split among various trusts and individuals. Only when the voting takes place and the result is known, would the real position emerge on how these have voted.
Philip Morris International (PMI) has a vetoing stake of 25.1%. There is an agreement between PMI and the KK Modi family defining the partnership between the two.
However, nothing exists in the public domain on whose side they range in this fight.
Samir Modi was appointed to his current position in the AGM held on 5/8/2021
His appointment was made for a five-year period and he is serving within the same.
However, the pitch has been particularly queered this AGM for the reason that it is his turn to retire by rotation and seek reappointment to serve the remaining tenure.
His reappointment as a director was at the mercy of the board which has decided not to accept his request for a renomination!
In other words, no resolution for the reappointment of Samir Modi is part of the notice of the meeting. However, one of the resolutions listed is for not filling up the vacancy on the board caused by Samir Modi’s retirement.
The retirement by rotation of Samir Modi has come at an opportune time for the rest of the board to decide against nominating him.
Upon the completion of the AGM, Samir Modi will cease to have any footing in the company and will be well and truly ousted!
The appointment of Charu Modi, the daughter, is a signal that she is ranged with her mother and not on the side of her brother.
In this milieu, some proxy firms, led by a US outfit, Glass Lewis, have recommended to vote against the resolution for the reappointment of Bina Modi as the chairman and MD, and the one for the payment of remuneration to her.
The advice of the proxy firms to vote against the appointment of Bina Modi as the chairman and MD, indirectly indicates a support for Samir Modi.
Since Bina Modi does not retire by rotation at this meeting, her continuance on the board has no uncertainty even if, in the unlikely event, she is not reappointed as the chairman and managing director.
The odds appear entirely in favour of Dr Bina Modi being reappointed as the CMD and her remuneration being approved.
The reason is that in terms of the agreement dated 28 May 2009, which Philips Morris signed with the Modi family, the right to appoint the managing director is with the Modi family.
Since Bina Modi is the choice of the board of GPI, PM will be bound to go with it under the agreement.
In the previous occasion, when Dr Bina Modi was appointed as the chairman and MD in the AGM held on 26 August 2022, the proposal was comfortably passed, though the public institutions overwhelmingly voted against it to the extent of 97.2%.
The reason is there is considerable apathy among the other public shareholders to vote. Even the system of voting from the comfort of one’s home or office is not encouraging shareholders to vote!
To move away from the issue on hand for a minute, this lack of participation of public (non-institutional) shareholders in voting was reflected in a recent case of reappointment of an independent director (ID) in Inter Globe Aviation Ltd, popularly, Indigo Airlines.
Pallavi Shroff, in March 2024, withdrew her consent to the reappointment as an ID in Asian Paints Ltd, well after the process of postal ballot was put through by the company.
The reason for pulling out was that her professional commitments came in the way of taking up the appointment.
If the workload had impeded her taking up the directorship in Asian Paints, it should equally apply in the case of Indigo Airlines.
Despite this background, the board of Indigo had put her up as a candidate for reappointment.
Worse still, the explanatory notes to the notice made no mention of the previous incident nor the basis on which the board made the recommendation when she had cited work commitments to pull out earlier.
This case clearly deserved to be voted against. Yet, thanks to the apathy of more than 92% of the public shareholders, despite a significant number of votes cast against by the institutions, the appointment has gone through.
To move back from planes and paints to cigarettes, the governance quotient at GFI seems weak and low, for the reasons discussed below.
Despite a large contingent of independent directors, there appears to be no conscious efforts to keep the warring promoters in check.
It is obvious the board has capitulated in favour of Dr Bina Modi, as she appears to have the ability to vote on behalf of the promoter entity.
There is enough reason to doubt if the board, despite six IDs, acted neutrally in eliminating Samir Modi from the race.
The board’s report dated 30 May 2024, which is part of the annual report, mentions nothing with regard to the alleged misconduct of Samir Modi and his acting against the interest of the company.
However, the notice dated 7 August 2024 for convening the AGM mentions that the board decided not to consider his reappointment due to conduct issues. Did all the problems arise in the intervening period?
Also, the IDs have met on 18 March 2024 to evaluate the functioning of all the directors. What was their conclusion with regard to the performance of Samir Modi?
If they had decided that his conduct or the performance was not conducive and he was unfit to be recommended for reappointment, and the said conclusion was accepted by the board, it should have been forthwith communicated to the stock exchanges.
Equally, why was he allowed to continue in an executive position and draw a hefty salary? Did the board initiate the process to terminate his contract as per the terms of employment?
Clearly, the board has many questions to answer if they functioned independently in this matter.
The next is the proposal to reappoint Dr Bina Modi as the CMD.
In proposing her reappointment for a period of five years, when she is just days shy of her 80th birthday, and with no known claims to be non-biological, there is some explaining for the board to do!
The next is the big leeway given to the promoters in the quantum of the remuneration drawn by them, which can go up to 14% of the profits; and the material jump in the amount paid in FY23-24 compared to FY22-23, especially to Bina Modi.
In FY23-24, both Samir Modi and Bina Modi, together, drew a remuneration of Rs85.95 crore, as against Rs53.42 crore in FY2023.
The relative size of their remuneration to the median remuneration in the company is way too high.
The issue of overpaid promoters is not unique to this case, and some mechanism to check this is overdue.
The hard questions about all the above issues are not getting raised more vocally in the media and by the non-promoter shareholders due to the more than satisfactory financial performance of the company.
Money seems to be oozing from all sides for the company given that smoking is injurious to the health and more and more people are wishing to check if the warning is real!
In June, Samir Modi had alleged that he had been roughed up by the security staff of the company when he wished to attend a board meeting.
The picture of him with a hand in a sling from the hospital bed was actually posted by his brother Lalit Modi, of IPL fame, who is also part of the family dispute.
Already police are investigating the criminal case and some questions have been raised against Apollo Hospital that treated Samir Modi due to the contradictory discharge reports!
It will be interesting to see what other steps Samir Modi takes to contest the actions of the board. So far, it was a fight between the family members only and the company was not directly a party.
Would he approach the national company law tribunal (NCLT) or the court to seek a stay on the conduct of the AGM, or its conclusion, at which point he loses his seat on the board?
The video AGMs have taken the spice out of such events which an in-person meeting can ensure, especially if the two in the ring are well supported by their personal security guards and an appreciative audience that can fuel a healthy combat!
Commonly, no judicial forum can provide the expeditious remedy that a true fist fight can!
(
Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
