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The coming rush in chairperson’s emeritus The companies act does not recognize chairperson emeritus. These appointments will have to be governed by a formal contract between the company and the individual or under its articles It will be beneficial to have the role and responsibilities, powers, and liabilities defined in a contract. And as it is an honorary post deserves an honorarium. Nothing more.
Rahul Bajaj stepped down as chairman of the Bajaj group last month, having been at the helm of Bajaj Auto from 1972, first as managing director and since 2005 as Chairman of Bajaj Auto and the companies that were carved out from it - Bajaj Finserv and Bajaj Holdings & Investments. The board recognizing his contribution has proposed appointing him as chairperson emeritus. His cousin Niraj Bajaj takes over as chair of the Bajaj Auto board. I expect to see many similar announcements this year. Change is happening on account of Securities and Exchange Board of India’s (SEBI’s) regulations that have
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called for a separation of roles between the chairperson and managing director. The chairperson is the leader of the board while the managing director (or chief executive officer), leads the management team. One manages the board, the other the company. This is being done to ensure firms have a ‘more balanced governance structure by enabling better and more effective supervision of the management.’
The regulation has expectedly caused some consternation in board rooms. The separation in itself is not the ground for boards to tie themselves in knots. The real reason is that under regulations the ‘chairperson and MD/CEO, of top 500 companies should not be related to each other in terms of the definition of “relative” as defined under the Companies Act, 2013.’
The effective date for this change initially was 1 April 2020. But its implementation was subsequently pushed to 1 April 2022. The chairman SEBI while speaking at the CII Corporate Governance Summit in early April hinted India Inc may not get an extension saying “as at the end of December 2020, only 53 per cent of the top 500 listed entities had complied with this provision. I urge the eligible listed entities to be prepared for this change in advance of the deadline.”
It is difficult to believe that this statement is what triggered the Bajaj group to act. In appointing Niraj Bajaj as chairperson Bajaj Auto, they may well be accused of finessing the board structure while staying within the ambit of regulations, but Rahul Bajaj, 82, with a lifetime of labor will find that the crown fits well – and no one should question his elevation.
But other companies wishing to emulate this, may not enjoy such a straight path. For one not everyone may be worthy of the chairperson emeritus title, even though they may passionately believe so. So, we should be prepared for the coming rush to appoint chairpersons emeritus - and a debasement of this title.
But for those wanting to go down this route, there are a few areas that need thought.
The companies act does not recognize chairperson emeritus. This is a title that companies or boards gives to former executive chairs or managing directors, who have had an outsized impact on their business over the years and is usually seen as a mark of respect for their contribution. While some companies have approached shareholders to vote on such appointments, this is more often linked to paying them remuneration, much like ‘office of profit’ under the Act.
Since no part of the Companies Act deals with chairperson emeritus, these appointments will have to be governed by a formal contract between the company and the individual or under its articles – which is best avoided. It will be beneficial to have the role and responsibilities, powers, and liabilities defined in a contract. This should include whether the chairperson emeritus can attend all board meetings as permanent invitees or just the ones s/he is invited to? Are they there as observers or can they speak - and influence the outcomes? If a class action suit is filed, is there any liability attached to the chairman emeritus by virtue of having attended the meeting where a decision was taken. Priya Garg and Vishal Hablani, in an exhaustive paper in the NUJS Law Review 2018 have questioned whether the law relating to fiduciary duties are even applicable to a chairperson emeritus.
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The contract should specify if the role is limited to board meetings or is is it a broader role in the company itself – which may have unintended consequences. If it is senior family member: they may continue to yield personal power, outside the company’s governance structure because of their historical contributions, or that they are a part of the ‘promoter’ family or even in deference to their age. In any case you now have two power centers.
Likewise, it is prudent to know what are the documents that the chairperson emeritus has access too. It will be shame if the company gets caught on a bind on this.
It is also important to remember that this is for all practical purposes meant to be an honorary post. It is hard to justify why the chairman emeritus should be paid as much as the whole-time directors, or even the other directors. We have already seen some abuse here. The chairperson emeritus of a Mumbai based company not only attended all board and committee meetings but even took sitting fees. An honorary post deserves an honorarium. Nothing more.
Exhibit 1: Chairpersons Emeritus on NIFTY 500 companies on 31 December 2020 Company Name Director Name Classification Bajaj Finserv Ltd Rahul Kumar Bajaj Promoter Bajaj Holdings & Investment Ltd Rahul Kumar Bajaj Promoter Blue Star Ltd Suneel Advani Promoter DLF Ltd Kushal P Singh Promoter Godrej Consumer Products Ltd Adi Godrej * Promoter Jyothy Labs Ltd M P Ramchandran Promoter Nilkamal Ltd Vamanrai Parekh Promoter Torrent Pharmaceuticals Ltd Sudhir Mehta Promoter Torrent Power Ltd Sudhir Mehta Promoter V-Guard Industries Ltd Kochouseph Chittilapilly Promoter Zee Entertainment Enterprises Ltd Subhash Chandra Promoter Tata Motors Ltd Ratan Tata Promoter Tata Chemicals Ltd Ratan Tata Promoter Tata Steel Ltd Ratan Tata Promoter Source: IiAS, Prime Database Group
There were about 14 chairperson’s emeritus in India in end-December 2020 and I expect this number to ratchet-up. But those wishing to reward themselves so, will do well to consider a line from the movie Late Night. In this, a character - a professor emeritus from Harvard, wryly remarks “emeritus is what they call you when you’re not dead yet, but they don’t want you to come in.”
A modified version of this blog, titled ‘The coming surge in chairpersons emeritus’ appeared in Business Standard on 19 May 2021. You can access it by clicking this link: https://www.business-standard.com/article/opinion/the-coming-surge-in- chairpersons-emeritus-121051801455_1.html
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