Leadership battle in Zee-Sony merger: Will it be Goenka or Singh, given governance & regulatory concerns

As the much-anticipated conclusion of the Zee-Sony merger approaches next week, the pivotal question remains: will the initially proposed leadership arrangement be upheld during the deal's finalisation?

There's growing speculation among stakeholders about the possibility of a reversal of the initial leadership structure. Per the initial agreement, Punit Goenka, MD and CEO of Zee Entertainment Enterprises Ltd (ZEEL), was slated to assume the role of MD and CEO in the merged venture. SPNI (Sony Pictures Networks India) was intended to hold 50.86 percent of the company, Zee's promoters would have 3.99 percent, and the remaining 45.15 percent was to be allocated to public shareholders.

However, Sony Group Corp has been pushing for its own India MD and CEO, NP Singh, to become the CEO of the newly formed Zee-Sony entity due to stringent corporate governance norms in Japan and the US.

According to sources close to the development, Sony might stick to their new proposal of putting Singh at the top of the merged entity.

“If the personal understanding regarding the leadership of the merged entity is not amicably resolved, it is going to affect both the entities,” said Rajiv Sharma, media law expert and partner at Singhania & Co.

Sharma suggested a probable solution too.

“A probable solution can be reversing the initial understanding, i.e., the merged entity being headed by a representative of Zee, and Sony having a majority on the board. So, the merged entity can be headed by a representative of Sony, with Zee having majority on the board, at least till the time the probe into Goenka’s actions is concluded. Such an understanding can be approved by an amendment in the scheme of merger passed by the NCLT,” he said.

In August this year, days after the NCLT (National Company Law Tribunal) approved the Zee-Sony merger, SEBI (Securities and Exchange Board of India) issued an order preventing Goenka and his father Subhash Chandra from assuming any significant management roles in Zee companies or the newly-merged entity.

The investigation in the matter would be completed within an eight month period, the regulatory body had said in its order.

The order not only addressed the regulatory concerns but also acknowledged the NCLT’s approval of the Zee-Sony merger on August 10. According to the order, it would be appropriate that Goenka is not part of the management of ZEEL or any of its corporate avatars.

This was followed by the Securities Appellate Tribunal (SAT) expressing dissatisfaction with SEBI’s order. Justice Tarun Agarwala, leading the bench, said they found the challenged order disagreeable and that eight months to come to a conclusion is too long.

According to him, the matter could go on indefinitely because there is public interest involved and the merger in question is approved by shareholders.

On October 30, SAT overturned SEBI's decision prohibiting Goenka from holding any managerial position in listed companies for a year.

But the fight for the top job in the merged entity puts a question mark on not just the merger details, but also corporate governance.

“The board of directors plays an important role in any organisation. With Goenka’s position hanging by a thread, the question between the two sides seems to be who will lead the merged entity and what will be the composition of its board. This may be a challenge given the regulatory probe into allegations of related party transactions and financial fraud,” said Shashank Agarwal, advocate, Delhi High Court.

According to him, the board must be composed per SEBI directives, consisting of a sufficient number of independent directors who adopt a professional approach while taking critical decisions.