Board failed to mitigate conflict of interest, says proxy advisory firm Ingovern
The Dani family, one of the promoters of India’s largest paint firm, Asian Paints, has come under fire from proxy advisory firm, InGovern after the latter pointed out several related party transactions between Asian Paints and Paladin Paints and Chemicals, a private company owned by the Danis.
“The lack of detailed disclosure and intent of procuring such a high percentage from companies, including Paladin, that are owned by promoters of Asian Paints is strange. For example, in FY 2019-20, Asian Paints procured over 5.8 per cent of its raw materials from companies controlled by the promoters. Paladin itself formed only 7 per cent of the value of goods purchased from promoter-controlled entities,” InGovern said in a report to clients.
An email sent to Asian Paints on Wednesday did not elicit any response.
Asian Paints shares closed at Rs 3,158 a share on the BSE with a total market valuation of Rs 3 trillion.
Saying that there is conflict of interest by the promoter/directors who own Paladin Paints and Chemicals, Ingovern said the promoter directors, who control entities supplying goods to Asian Paints, should immediately resign from the Asian Paints board. “Sebi needs to investigate and insist on detailed disclosures of related party transactions by such a large listed company,” it said.
Ingovern said the audit committee of Asian Paints, chaired by M K Sharma, former chairman of ICICI Bank, should ensure that the disclosures are more granular, so that investors are not left wondering why the company is not transparent. “The audit committee did not consist only of independent directors, but included a promoter director.
Asian Paints should ensure that going forward the audit committee comprises only independent directors,” said the report.
Ingovern also noticed that Asian Paints procured goods from other entities/companies that are controlled by promoters and it is not clear as to which are these entities and the value of goods procured from these entities. “It is not clear whether these entities are controlled by other promoter families, apart from the Dani family. Inadequate disclosure of value of related party transactions and logic thereof, with Paladin and other promoter-controlled entities; thus, leaving the issue a bit cloudy and throwing up questions on conflicts of interest,” it said.
The firm said the board must present details of the related party transactions with each of the promoter-controlled companies/entities, including Paladin. The Audit Committee did not consist only of Independent Directors, but included a promoter director, hence Asian Paints should ensure that going forward the audit committee comprises only independent directors, it said.