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Satyam: A new low for India Inc
December 19, 2008
It's not often that one uses adjectives like audacious, preposterous, outrageous and shocking to describe a single event and still feel one hasn't quite done justice. But the aborted Satyam Computer-Maytas deal has left most people at a loss for words.
He can't be blamed. In the past institutional investors in this country haven't really spoken up against corporate misbehaviour. Even Sterlite's attempt, in September this year, to transfer the high-quality aluminum business and merchant power to Malco, in return for the low-quality, high cost, copper Konkola mines, again without so much as a by-your-leave, didn't anger shareholders.
In that instance too, the promoters were enriching themselves, at the cost of minority shareholders, but no mutual fund really said so. There have been numerous other instances, admittedly of smaller consequence, that should have provoked mutual funds to ask questions.
But they haven't. Now, suddenly the same institutional shareholders have found their tongues. This time, their stake is big - just over 50 per cent. And Satyam isn't a Reliance [Get Quote] or Tata or Birla. Also, they realise how vulnerable and helpless they are because, had Ramalinga Raju wanted, he could have pushed through the deal. And no one could have stopped him, because the board had voted unanimously.
Institutional investors have their own vested interests; they are known to cosy up to managements of firms in which they have large positions so as to have access to privileged information. It's well-known that there are back-to-back arrangements between mutual funds and corporations: Funds buy into the firm's stock in return for investments in their income schemes. Instances of stock being dumped just before the bad news is out or shares being snapped up before the good news is flashed aren't always 'coincidental."
But now it's time institutional shareholders got together to show promoters that they simply cannot get away with this kind of behaviour. In the
As do the independent directors on the boards. One can hardly ask for more qualified people than Vinod Dham and Krishna Palepu. But the fact that they voted in favour of the Satyam-Maytas proposal is shocking. What's the point in having independent directors if they can't guide the management on critical issues?
As Adi Godrej [Get Quote] has pointed out, we need to see more resignations from independent directors. But even before that, we need to see some fresh thinking on the way they are appointed. Godrej also says he prefers less regulation for corporate governance and more principles. But that may not work in
Also, all related party transactions - mergers and acquisitions - must be cleared by minority shareholders, without the majority shareholders participating in the voting. Some countries already have this rule in place. So, even if the promoters have a majority 51 per cent stake, such a transaction would not go through without the consent of minority shareholders. That may seem restrictive and cumbersome but since Indian promoters have clearly failed to keep the interests of minority shareholders in mind, they deserve this.
Shareholders in Satyam have been sitting ducks -overnight the value of their investment has been eroded by 30 per cent. The story was similar with Sterlite where the price plunged 18 per cent after the restructuring announcement and is yet to recover.
A CLSA study of the state of corporate governance, in 20 countries across Asia, shows that
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