More power to the minorities

Jan 12 2012, 03:05 IST
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SummaryIn recent times, citizensí activism on corruption in India has got the attention of the world and has made the political and other establishments take cognisance of the power of these protests.

In recent times, citizensí activism on corruption in India has got the attention of the world and has made the political and other establishments take cognisance of the power of these protests. Outside India, the Occupy Wall Street campaign has been taking various countries by storm and has been focussing attention on the excesses by the high priests of the street. Do our current laws empower us to demand our entitlements in a normative manner? Or is activism the last resort for protesters, who are seeking redressal for their grievances?

Indian laws, in many ways, have focussed on a continuum of the status quo, where the accepted balance of equilibrium is rarely altered, whether by law or by collective action. Most Indian commercial laws are drawn up in line with the best practices in the world but, in implementation and seeking redressal, the rule of law is rather weak. Hence, dispensation of law becomes ineffective when the fear of consequences for a breach of the law is not a deterrent.

Despite the delays in the delivery of justice, Indian investors have rarely resorted to activism when their rights have been compromised. Large institutional investors, who lead this process in mature markets, are relatively quiet in India and no significant measures

of protests against corporate misdemeanours have been initiated by them.

Perhaps the first prominent example of shareholder activism in India was in the case of the merger between Maytas and Satyam. The protest against the merger was led by most of the institutional investors on the grounds of unjust enrichment of the Raju family; fearing a backlash from capital markets and regulators, the decision was quickly reversed by the companies. Institutional investors could be effective in this instance primarily because the Raju family owned less than 10 % of Satyam at that point of time and therefore had fewer voting rights.

However, the usual behaviour of non-promoter investors in India is that of acquiescence rather than activism.

Shareholder activism is a means of assertion of rights by an individual or group of shareholders vis-ŗ-vis the owners and management of a company. Activism may include say-no-pay proposals, class-suit actions, to exit, private discussion or public communications with corporate boards and management, even putting forward alternative shareholder resolutions and, as a last resort, seeking redressal from regulators and courts. Activism works as a counter-balance when owners or managers have significant entrenchment rights. Entrenchment rights by

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