Proxy advisory firm Institutional Investors Advisory Services (IIAS) has flagged corporate governance issues at Zee Entertainment Enterprises Ltd (ZEE) and asked the shareholders of the company to vote against the re-appointment of independent directors Ashok Kurien and Manish Chokhani.
IIAS, in its report, said that Chokhani and Kurien were members of the audit and remuneration committees that had approved a 46 percent rise in Goenka’s pay for FY21, while employees received no raise. Chokhani and Kurien have already resigned ahead of the company’s annual general meeting (AGM) on Tuesday.
Meanwhile, Zee’s largest shareholders Invesco Developing Markets Fund and OFI Global China Fund LLC have called a special shareholders’ meeting seeking the removal of Punit Goenka from the post of CEO.
According to IIAS, Chokhani and Kurien were members of the audit committee in FY20 and are accountable for the losses on account of related party transactions, which resulted in significant erosion in shareholder wealth.
“As a member of the Nomination and Remuneration Committee, Chokhani is accountable for not professionalizing the board, especially given that promoter equity has declined to less than 5 percent. He is also accountable for the failure to address and adequately deal with governance concerns that led to the resignation of independent directors in the past,” the proxy advisory firm said.
In its report, IiAS pointed out that Goenka’s revised pay was higher than what shareholders had approved in the 2020 AGM.
“Shareholders are advised that Punit Goenka’s revised remuneration is higher than the terms approved in the 2020 AGM. Further, the increase in remuneration contradicts the company’s assertion that Punit Goenka had taken a 20% pay cut (in his fixed pay) from April 2021,” the report said.
The report also did not accept the company’s rationale that since it did not cut employees’ pay, the raise is zero percent.
The report said that the company’s rationale that since it did not cut employees’ pay, the raise is zero percent “is flawed as an argument”.
“Other companies administered pay cuts because of the COVID19 shocks – with a view that the reduction in employee costs (to whatever degree) would help them support a larger set of employees and reduce their compulsion to let go of people. In ZEEL’s case, the FY21 profits where higher than FY20 (admittedly not quite recovered fully to FY19 levels yet). Therefore, the NRC (Nomination and Remuneration Committee) could have considered being more equitable in its distribution of pay raises,” the report added.
Speaking to CNBC-TV18, Hetal Dalal, President & COO, IiAS believes that Zee’s board has failed at the discharge of its fiduciary responsibilities. The issue was pointed out last year, while there have also been concerns over internal financial control.
“There are still open issues around some of the related party transactions, these are still not being closed and the company’s performance may have sort of improved and cleaned out a little bit. But by and large, we think a lot more needs to be done to pull the company out of where it is and therefore as we believe fundamentally that there needs to be a change at the board level,” she said.
Proactive changes to the board and exit of the promoters is the first step in that critical juncture, she said.
“I know the company has been talking about the fact that there has been a lot more consolidation in the current year, but we think that there are the risks of governance failures and lapses to related parties continue, and therefore, the exit of the upper management and bringing in a fresh lot is really the way to go.”
Meanwhile, the shares of Zee Entertainment Enterprises rallied almost 40 percent on BSE with large volumes after the resignation of directors. Analysts believe that this was a step in the right direction and a change in management would be positive for the company.
“It is a step in the right direction, the present management has significantly diminished value of Zee, it has been a massive underperformer and maybe it is high time we should have a change of management. Getting new faces, new ideas can take the stock price higher. End of the day, Zee is a very strong brand and it has got a good network and is very strong in terms of its operations. But maybe the right type of management is what is missing over here. So, I am all in favour of the change of management,” said Dipan Mehta, Director, Elixir Equities.
Mehta believes the valuations in Zee are attractive at this point in time and any such corporate action could trigger upward movement in the stock price. The company has got a lot of potential in terms of OTT platform and content creation which should do very well, he said.