Vote for change

It is a rather rare occurrence when the young and the underprivileged opt for the right wing of the political spectrum and vote for less governance and business-friendly development over romantic social equality and wealth redistribution. They vote for their dreams of upward mobility and a chance to grow exponentially, rather than for handouts and freebies that are a result of higher taxes and government controls. The recent electoral results in India are being touted as the rise to power of our own Ronald Reagan or Margaret Thatcher, but the reality couldn’t be further from that. Narendra Modi is an individual who has prepared himself over the past four and a half decades for the role of the leader of this nation. He has understood the pulse of the nation and has been given a stellar opportunity to take steps that could make India stand tall as a harbinger of efficiency and rationality in all its processes as an economy and as a society.

India, today, stands at a crossroad, one that is the equivalent of the flight of the aspiring from the oppressive and economically stifling Europe of two or three centuries ago, to the grand opportunities of the land of promise, a land where you could shape your own destiny, unhindered and unburdened by your ancestry, socio-political or economic standing. 

The US, at that time, was a land where working hard to get rich was seen as patriotic, and income tax as something illicit. People never looked to the government for anything and instead expected it to do the right thing by staying out of their way, letting citizens prosper through ingenuity and persevering hard work.

Being an avid proponent of the Austrian school of economics and a libertarian at heart in the mould of Ron Paul, I would best describe my politics as socially liberal and fiscally extremely conservative. Quite naturally, I believe that libertarianism is the most efficient way for human society to exist and so, would love to see India move in that direction. Given the unique mandate bestowed upon the current leadership, the nation can dare to dream. I am quite obviously excited and thus, in my enthused state, suggest the following as my wish list for a new, resurgent India. 

So, here goes:

• Discourage dynasties across corporate and political landscape

 • Abolish all forms of taxation and replace these with a voluntary contribution by corporates and individuals that bestow privileges on contributors who achieve certain thresholds. This way, VVIP status can be reached purely through economic achievements. 

 • Facilitate rationalisation of real estate prices in urban centres through rapid infrastructure development linking the entire country.

 • The government should move away from gold reserves and disband the Reserve Bank of India.

 • Do away with all subsidies, incentives, customs duties and levies of any sort. Divest all government stakes in business ventures.

All in the family

The Grand Old Indian political dynasty has been emphatically humbled at the hustings. As an investor, it would be delightful to see Indian corporate dynasties take a cue from this and usher in reform that ensures an optimum and efficient management structure at all times. By this, I mean reform that sounds the death knell to the notion that only descendants of the founding families have what it takes to run their corporations. 

Most Indian political parties are built upon the vision, hard work, deft manoeuvring, innovative fund raising and perseverance of a handful of men or women rather than any one individual. It is much the same with most of your corporates. So, if the time has come to introspect upon the role of founding families in political parties, can the time to introspect on the role of their counterparts in the corporate world be far behind?

The fact that the founders toiled to set up these companies should not come to mean that corporates become the private property of such families. That has been the bane of many of such companies and, in my opinion, has prevented Indian corporates from claiming their rightful place under the sun. In the early 1980s, Swraj Paul had made a play for Escorts and the DCM group. Of course, the attempt met with an outcry, followed by a legal and political tussle, and Paul had to beat a hasty retreat. I can’t help wondering, though: would the interests of shareholders at large have been better served if the outcome had been different? After all, the fate of both these groups and their shareholders over the last three decades is there for all to see.

As with political ideologies and the parties that represent them, corporate culture and the people that represent them are national treasures and it is absurd that they should be held hostage to the well-documented generational decline that every family goes through. It is the right of an entrepreneur to enjoy the fruits of his labour and thus, in his lifetime, shape the destiny of the company that he so assiduously worked to create and nurture. However, if it is found that he is for some reason unable to deliver the requisite leadership owing to incapacitation of some sort, or death, it is only logical that the company should seek a leader who would be the most suited to lead, irrespective of his pedigree. Consider the role that activist investors such as Pershing Square and Icahn Enterprises have played in the unlocking value for minority shareholders. They would not have achieved what they did without the ability to get some of their nominees on the board.

Having struggled to retain control of his own baby, Steve Jobs had to fight against all odds and prove himself and this gave him even more incentive to prove his critics wrong, taking Apple to new heights of glory in his second innings. How many Indian industrialists can claim that they had to struggle to prove their mettle before being anointed as lords of their respective fiefdoms? Moreover, most corporate boards are controlled by families through a voting system that requires a simple majority of those present and voting to approve each director. Typically, the attendance at each of these shareholder meetings is not more than 60% and thus even a 30.01% holding can ensure that all the directors on a board are from the founding family or its chosen nominees. It is the equivalent of Parliament being filled with members of only one family or its nominees, just because that family helped win freedom for India.

Minority is strength

We must move towards a system wherein the minority shareholders should get an exclusive say in deciding who will govern the company via its board. It’s the equivalent of the general members of a party voting for its office bearers. While we digest the radical nature of that suggestion, let us take the first step by making the board a proportional representation of the shareholding pattern. A 30% shareholding for the founding family should give it 30% of the seats. The rest of the board should be voted upon only by minority shareholders. If they then chose nominees of the founding family, so be it. Also, those 70% chosen by the minority can only be removed when minority shareholders vote them out. In other words, make them truly independent.

While some ideas may still not be put into practise in the so-called developed countries, I think we can take the lead by setting higher standards in corporate governance. Let’s not worry if such a precedent is followed in the US or Europe. It’s time for a breakout move into uncharted territories.