Dr. Anil Kumar Angrish

Bhakti Sajgure

Board characteristics have drawn attention of researchers across the world as board of directors exercise significant influence on success or failure of a corporate entity. Board size, board independence, and board gender diversity are integral components of Board characteristics. Diversity can be observed in terms of gender, age, and nationality of board members thereby recognizing their influence on directors’ knowledge, experience and skills. Vijay Govindarajan and Chris Trimble in their paper titled, ‘The CEO’s Role in Business Model Reinvention” (Harvard Business Review January-February 2011 Issue) cited N.R. Narayana Murthy of Infosys in this regard what he called the “30/30 rule”: 30% of participants in any strategy discussion should be younger than age 30, because they are creative and not wedded to the past. In this way, Infosys relied heavily on inputs from young employees. The company assembled a Voices of Youth panel of higher performers who participated annually in eight senior management meetings. Murthy credits youth involvement for sparking more than 10 R&D projects at Infosys on diverse areas.

Regulation 17 of the Listing regulations and Sections 149 and 152 of the Companies Act, 2013 has a requirement that the board size should lie between 3 and 15. Further, it is also provided as per Regulation 17 (1) (c) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (referred as ‘SEBI LODR’) that the Board of Directors of the top 1,000 listed companies (with effect from April 1, 2019) and the top 2,000 listed companies (with effect from April 1, 2020) shall comprise of not less than six directors. Top 1,000 and 2,000 was to be determined on the basis of market capitalization as at the end of the immediate previous financial year.  In this background, board size in top 25 pharmaceutical companies in India in terms of market capitalization varies from 6 to 12 directors.

The Kotak Committee under the Chairmanship of Uday Kotak was constituted in June 2017 and one recommendation was regarding minimum six directors in all entities. This recommendation was positive but it was not possible to implement the recommendation or all entities at one go, and hence, it was implemented in a phased manner. At that time, 97% companies out of top 500 in terms of market capitalization at NSE, and 94% companies out of top 1,000 and 69% out of top 1,00 and above, had at least six directors on boards. For the companies listed on the BSE, 96% companies out of top 500, 91% out of top 1,000, 78% out of top 2,000 and 63% out of top 3,000 companies had at least six directors. By 2023, out of 25 top pharmaceutical companies, only one company had 6 directors, and other 24 pharmaceutical companies had a higher number of directors as given in Table 1.

Table 1:- Board Size in Top 25 Pharmaceutical Companies in India

Source: Compiled from Annual Reports (2023) of respective companies

Board Independence is an important consideration as Section 149 (4) of the Companies Act asks for one-third of total directors as Independent Directors. Regulation 17 of the Listing Regulations mandate that in case the Chairman of the Board of Directors is a non-executive director, at least one-third of the Board of Directors shall comprise of independent directors and where the listed company does not have a regular non-executive chairman, at least half of the Board of Directors shall comprise of independent directors. 15 pharmaceutical companies (Sun Pharma, Cipla, Zydus Lifesciences, Torrent, Lupin, Aurobindo, Abbott, GSK, Gland, Ajanta, JB Chemicals, Laurus, Sanofi, Suven and AstraZeneca) out of top 25 have three types of directors namely Executive, Non-executive, and Independent directors, e.g., Pankaj R. Patel served as Non-Executive Chairman of Zydus Lifesciences, and Mukesh M. Patel served as Non-Executive Director. Dr. Sharvil P. Patel who is the son of Pankaj R. Patel served as Managing Director, and Ganesh N. Nayak is the Executive Director of the Company. On March 31, 2023 the company’s board comprised of 10 directors which included 2 Executive Directors, and 8 Non-Executive Directors, including 6 Independent Directors. In other words, the board size of 10 directors comprised 4 non-Independent directors and 6 Independent Directors.

Eight (08) pharmaceutical companies (Natco Pharma, Pfizer India, Alembic Pharma, Glenmark, Ipca Labs, Alkem Labs, Divi’s Labs, and Dr. Reddy’s Labs) among top 25 had two categories of directors, i.e., Non-executive Independent Directors and Executive Directors. Glenmark had the highest number of non-executive independent directors, followed by Dr. Reddy’s Laboratories. An equal number of non-executive independent directors and executive directors were present in the board of Natco Pharma, Ipca Labs, and Alkem Laboratories. Piramal Pharma and Mankind Pharma have used the nomenclature of Executive Directors, Non-Executive Independent Directors, and Non-Executive Non-Independent Directors, e.g., in Piramal Pharma, Nandini Piramal and Peter DeYoung (married to Nandini Piramal and acknowledged under inter-se relationships among directors) are Executive Directors – Promoters Group, one Executive Director – Non- Promoter Group, two non- Executive and Non-Independent Directors – Non Promoter Group and four board members represented as Non–Executive Independent Directors.

It is also mandated under Regulation 17 of the Listing Regulations that the Board of Directors shall have an optimum combination of executive and non-executive directors with at least one – woman director. The Kotak Committee as referred above had recommended “at least one woman independent director” on all listed entity boards. Implementation of this recommendation was also found difficult for all entities at one go. Hence, it was made mandatory that the Board of Directors of the top 500 listed companies shall have at least one independent woman director by April 1, 2019 and by April 1, 2020 this provision was made mandatory for the top 1,000 listed companies. For FY23, each of 10 pharmaceutical companies (Natco, Alembic, Pfizer, Laurus, J.B. Chemicals, Ajanta, Gland Pharma, Ipca Labs, Sun Pharma and GSK India) had one – woman director. The highest number of female directors was in case of Glenmark, i.e., 4 out of 12. Each of six pharmaceutical companies namely AstraZeneca, Piramal Pharma, Abbott, Alkem Labs, Lupin and Dr. Reddy’s Labs had 3 female directors. 8 out of 25 pharmaceutical companies had two female directors respectively.

Finally, the Committees of the Board also have a bearing on the Corporate Governance of any organization. Statutory committees namely Audit Committee, Nomination and Remuneration Committee (NRC), Stakeholder Relationship Committee (SRC), Corporate Social Responsibility (CSR), and Risk Management Committee (RMC) are mandatory under the Companies Act. All top 25 pharmaceutical companies have these committees except that Lupin and Cipla has the Sustainability Committee that is entrusted with CSR activities, and in Zydus Lifesciences, ESG Committee deals with CSR mandate. Similarly, for Stakeholder Relationship Committee, Cipla and Zydus Lifesciences have different nomenclature.

Significant differences are found in Non-statutory Committees constituted by various pharmaceutical companies. Sun Pharma has a Corporate Governance and Ethics Committee. Cipla and Glenmark have an Operations & Administrative Committee. Certain Committees are for a specific purpose, e.g., Buyback of Shares. For 2023, Zydus Lifesciences as well as Natco Pharma had Buyback Committee. Only Zydus Lifesciences reported about Finance & Administration Committee. Dr. Reddy’s Laboratories had a Banking & Authorization Committee for this period. Glenmark and Zydus reported about their Environmental, Social and Governance (ESG) Committee and no other pharmaceutical company among top 25 pharmaceutical companies had ESG Committee. Gland Pharma and Natco Pharma had ESOP Compensation Committee. Just one company – Dr. Reddy’s Laboratories, set up Science, Technology and Operations Committee. Other main committees set up by top pharmaceutical companies were: Committee dealing with Land Property by two pharmaceutical companies, Executive Committee by two pharmaceutical companies, Share Transfer Committee by four pharmaceutical companies, and Board Administrative & Share Transfer committee by one pharmaceutical company.

Board characteristics of top 25 pharmaceutical companies in India as captured above, present these companies in positive light. In finality, it is the board evaluation that can contribute significantly to improved performance at three levels – Organizational, Board and individual Board member level. Otherwise, just representation on the board without contribution is like what late Subir Raha as CMD, ONGC said in January 2009……..board members opening their mouth only to sip tea.

Dr. Anil Kumar Angrish- Associate Professor (Finance and Accounting), Department of Pharmaceutical Management, NIPER S.A.S. Nagar (Mohali), Punjab

Bhakti Sajgure- MBA (Pharm.), Department of Pharmaceutical Management, NIPER S.A.S. Nagar (Mohali), Punjab

Disclaimer: Views are personal and do not represent the views of the Institute.