Running Amok

Corporate governance may be the topic
du jour but much of it seems to be just that — talk. The ones who are really affected — minority shareholders — do not matter and those who do have the clout — the institutions — choose to punch below their weight. They avoid stepping on toes and prefer taking an alternate route to make up for any damage, ensuring that everyone who matters stays happy. As for the media, many of us couldn’t care less and many a time the outcome seems pre-destined, no matter the din around it. 

Corporates, especially in India, get away with just about anything because financial institutions or other large stakeholders prefer to look the other way. Most board members are simply incompetent or smart enough not to voice their dissent, for very obvious reasons. For foreign investors, India is such a maze that fighting battles in court is next to impossible, so they tend to stay away from sticky situations. The smart local fund managers, too, focus on cutting their losses and looking for their next bet, instead of getting entangled in bridge-burning. 

Then, at times, local funds do not act collectively, as they can’t come to agreement given their differing agenda. As for state-owned insurance institutions that can really rock the boat, they have proved time and again that they would rather provide cover to corporates. Because if and when they fall short of credit, the government will return the favour with taxpayer largesse, as has been the case with most public institutions in the past. 

This and more is the subject of this issue’s cover story that starts on page 52. The only way corporate governance can improve is when managements have some fear of activist investors. Unlike in the US, that is largely absent in India. While activist investors can cut both ways, the regulator has to accept them as an effective way to create an efficient marketplace rather than crusaders out to spoil the party. As for retail investors, they have no option but to do their homework and if the past is any indication of the future, there isn’t much reason for hope.