Richard Branson once said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.” This comment turned out to be prophetic for several Indian airlines beginning with Air India and ending with the most recent debacle of Jet Airways. The airline industry, by its very nature, is vulnerable to the slightest of shocks, which makes it a volatile business. In that context, IndiGo’s success is no small feat. It is one of the few low-cost carriers to have expanded in such a short period of time, and remain profitable for a large part of its existence. Most importantly, from a small set up, it now has about 50 percent market share in domestic travel, displacing well-entrenched players. So, as far as investors as concerned, the board has delivered.
For the company to remain focussed on its current path of growth, improvement in corporate governance standards is important. This will ensure that the business can function independent of the promoters and decision-making processes are more broad-based. This is not to say that promoters should be made redundant (in fact, investors like promoters that have their skin in the game) but the degree of dependence on them should reduce. Listed companies must be influenced and guided by their promoters, but should not be dependent upon them.
IndiGo’s success has come despite a relatively small six-member board – Indian boards have a median size of 8 to 9 directors. Of this six-member board, three are promoters, one is a promoter nominee and the remaining two are independent directors. Under regulations, IndiGo is required to have one independent director who is a woman – the company is yet to comply with this requirement. With four mandatory board committees to be formed, the membership of these committees itself could be construed as cause for conflict of interest – both the audit and the nomination and remuneration committees included either executive directors or promoters as members. It is only after M. Damodaran was inducted to the board in January 2019, that committee compositions changed – now both these committees comprise two independent directors and one promoter nominee.
16/07/19 Hetal Dalal/moneycontrol.com
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For the company to remain focussed on its current path of growth, improvement in corporate governance standards is important. This will ensure that the business can function independent of the promoters and decision-making processes are more broad-based. This is not to say that promoters should be made redundant (in fact, investors like promoters that have their skin in the game) but the degree of dependence on them should reduce. Listed companies must be influenced and guided by their promoters, but should not be dependent upon them.
IndiGo’s success has come despite a relatively small six-member board – Indian boards have a median size of 8 to 9 directors. Of this six-member board, three are promoters, one is a promoter nominee and the remaining two are independent directors. Under regulations, IndiGo is required to have one independent director who is a woman – the company is yet to comply with this requirement. With four mandatory board committees to be formed, the membership of these committees itself could be construed as cause for conflict of interest – both the audit and the nomination and remuneration committees included either executive directors or promoters as members. It is only after M. Damodaran was inducted to the board in January 2019, that committee compositions changed – now both these committees comprise two independent directors and one promoter nominee.
16/07/19 Hetal Dalal/moneycontrol.com
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