Corporate Governance Alert – Kirloskar Brothers Ltd

InGovern recommends voting AGAINST payment of Professional fees to an Independent Director of Kirloskar Brothers

InGovern Research recommends voting AGAINST Kirloskar Brother’s AGM proposal no. 6 of paying Rs. 10 Lakh to Mr. SN Inamdar, an ID on the Board of the company for availing professional legal services. This fee is over and above any commission and sitting fee which he is entitled to attend.

Mr. Inamdar is a Senior Advocate at Bombay High Court and has expertise in corporate taxation and appellate matters and Kirloskar Brothers availed his professional services during FY 2015-16.

Payment of any fee apart from commission and sitting fee to an Independent Director defeats the very definition of being an ‘Independent Director’ since the director aligns a part of his/her financial interest with the company and acts as a service provider/ vendor to the company. As per a widely popular book, ‘Financial Shenanigans: How to detect accounting gimmicks & fraud in financial reports’, authors Howard M. Schilit and Jeremy Perler state that providing professional services to the company would cloud an independent director’s objectivity and appearance of independence and such an arrangement is one of the important red flags that provide a breeding ground for shenanigans.

InGovern recommends the company to either replace Mr. Inamdar from its Board of Directors or reclassify him as a non-independent director at the earliest.

InGovern also recommends voting AGAINST the proposal for re-appointment of Mr. Sanjay C. Kirloskar as Managing Director. His proposed salary of Rs. 7,50,000 per month is 50% higher than Rs. 5,00,000 per month paid during FY 2015-16. This proposed increase in salary is not in line with the financial performance of the company. The company posted losses of Rs. 32.16 Crore on a consolidated basis in FY2015-16. On a standalone basis, although the company posted an increase of 38% in net profits over the previous year, Mr. Kirloskar’s remuneration of Rs. 1.23 Crore for FY2015-16 was higher than the maximum limits as stipulated in the Companies Act.

Kirloskar Brothers is holding its AGM on 21st July 2016 at Pune.