Proxy advisory firm Stakeholders' Empowerment Services (SES) has objected to two resolutions put up by Tata Steel regarding the appointment of statutory auditors and an independent director citing past professional relationship between the two. The resolutions are coming up for shareholder approval at the annual general meeting of Tata Steel on Tuesday
The proxy firm asked shareholders to vote against resolutions to appoint Price Waterhouse & Co Chartered Accountants LLP, as statutory auditors and to approve the appointment of Deepak Kapoor, who was the former Chairman of PwC India, as an independent director.
Business Standard sent an email seeking comments on Friday. After initially seeking time till Monday to revert, a Tata Steel spokesperson declined to offer any comment. While there are arguments that Kapoor was part of PwC's consulting division, which was housed under a separate legal entity and therefore not directly related to its audit firms, proxy firms argue that corporate governance standards demands that top firms should adopt best practices , that go beyond the written word of law.
"Mr. Kapoor has been associated with PwC for almost 40 years and was its Managing Director between 2007 to 2016. SES is of the opinion that, though appointment of PwC may not be in contravention of the law, however, mere presence of Mr. Deepak Kapoor on the Board of Tata Steel may have an adverse impact on the audit process and may give rise to ethical issues. According to SES, recommendation of PwC as the Statutory Auditor of the Company is not reflective of good governance practice and may lead to conflict of interest issues, hence, recommends that the shareholders vote AGAINST the resolution," the firm said in its report.
Further, the report said that Kapoor would lose his independence once PwC's appointment is approved by the shareholders. "SES is of the opinion that technically as per law Mr. Kapoor will qualify to be Independent till the time of passing the Auditor's appointment resolution, but will lose his independence immediately after conclusion of AGM once PwC is appointed as Auditor. Further, his appointment as a Director on the Board may give rise to ethical issues and have an impact on the independence of the Audit Process. SES recommends that the shareholders must vote against the resolution."
The proxy firm asked the company to explain why despite these apparent issues, the company chose to appoint PwC. "SES believes that in accordance with law, the matter of appointment of PwC as Auditors would have been approved by the Board and Mr. Kapoor being a board member would have participated in the same. Further Mr. Kapoor would have in all probability disclosed his association. Even without his disclosure the Board would have been aware of the association, having considered his appointment on the Board as ID. The Company should have disclosed to shareholders that despite this association, why it is of the opinion that independence is not vitiated and why the Company wants to appoint PwC as Auditors."