Companies and their Maaliks...
Prakash Mahtani
Companies and their Maaliks
Unfortunately in india, an owner runs a company & shareholders are there just to hope that the owner lets them have something
By Dhirendra Kumar | Apr 15, 2014
Promoters acting against other shareholders remains an endemic problem in Indian business. Quite uncharacteristically, some Indian mutual funds have recently gotten involved in a corporate governance issue. The object of their protest is Maruti and the basic issue is parent company Suzuki's decision to start manufacturing independently of Maruti in India. Seven AMCs (HDFC, Reliance, UTI, DSP BlackRock, SBI, Axis and ICICI Pru) have told Maruti that Suzuki's plan to manufacture cars in a new plant and then sell them through Maruti is against the interests of Maruti investors. They have also complained to SEBI.
These heavyweight AMCs together ownR2,100 worth of Maruti shares, amounting to almost 4 per cent of stake in Maruti. Add to this the 7 per cent owned by the LIC which has also protested against Suzuki's move. With institutional investors owning 11 per cent of stake, this could well be the biggest investor revolt in a large Indian company.
Back in 2010, SEBI had asked mutual funds to formulate guidelines on exercising their voting rights as shareholders. Later, it was made compulsory for AMCs to reveal their voting record publicly. Unfortunately, AMCs generally abstain from voting quite a lot, although there are exceptions. Franklin Templeton, Birla Sun Life, DSP BlackRock and Reliance vote on almost every resolution. At the other end of the spectrum, some AMCs with large equity holdings like ICICI Pru, UTI and Tata hardly ever bother to vote.
Such behaviour is also common to other similar classes of investors like insurance companies and even FIIs. The reason is that financial investors believe in 'voting with their feet'. The meaning of this vivid phrase is that if they find that there is something questionable with the way a company is being run, then they will simply sell and walk away. And if enough shareholders do this then the stock price will fall and the same effect would have been achieved.
Logically speaking, an investor who detects a widely unknown governance problem should sell than publicise it. It's when the problems are widely publicised it becomes a bigger issue. Certainly, SEBI is right in asking funds to have a view on all issues and vote actively. Moreover, except for short-term punters, shareholders are owners and must think and be involved like owners should be.
Unfortunately, Indian law and custom marks out a certain shareholder as a 'promoter', which is just a thinly disguised version of 'maalik', the owner. In our way of thinking, a maalik runs a company and shareholders are there just to supply money and hope that the maalik lets them have something in return. In fact, in terms of acting against shareholder interests, the Government of India is probably the most shady large promoter and no Indian institutional investor has ever protested against it.