The change of management at Mumbai-based power utility BSES Ltd has been in the news of late, with the Reliance group taking control and ushering in board-level changes. But it?s not the fact that Reliance has taken charge at BSES which makes this management change important or newsworthy. The BSES case marks the first instance in recent memory of a fiercely independent, ?professionally-managed? (for want of a better word) company undergoing a makeover and becoming part of a group which has a clearly identifiable promoter family, the Ambanis. In many ways, therefore, this is a landmark case.
For several years now, these professionally-managed companies ? companies run by professional managers with financial institutions as the major shareholder bloc ? have been operating with little threat of takeovers or management change. In high-profile cases of recent memory ? those of ITC Ltd and Larsen & Toubro ? such companies, and their managers, have managed to hold out successfully against the ?invaders? whenever attempts have been made to wrest control of their independence. The BSES case is a landmark one because this time, a professionally-managed company has come out in open support of an industrial group keen to take charge of the company.
The BSES management supported this bid, underscoring the fact that the entry of this clearly identifiable promoter group would, hopefully, be able to enhance shareholder value. The financial institutions, which together have about 36 per cent in BSES, also supported the change in management, particularly since the Reliance bid for change in control was made through a second open offer by it. In today?s times, this change means several things for other professionally-managed companies.
Typically, over time, boards and the top executives of such companies, whichever business the companies may be in, get used to their independence and freedom in taking decisions, particularly since there is no real need to adapt to any particular group ?culture?. These companies have their own corporate cultures and identities and their own loyal set of shareholders. In most cases, any attempt by another corporate entity or group to pitch for such companies is greeted with stiff resistance on the part of these professional managers, and often such resistance is manifested by intense backroom manoeuvring which often includes getting hold of political backing as well.
Am I, then, suggesting that independently managed companies should quietly allow corporate groups to take them over? Certainly not. What is crucial in such cases is the assessment by the managements of such companies of what exactly will serve to enhance shareholder value at the company. While it is true that any takeover attempt will initially serve to enhance shareholder value in the immediate context, by pushing up share prices in the near term, in the hope of a bidding war in the open offer process, professionally managed companies must act in the best interests of the larger body of shareholders in deciding their long-term course of action. In this context, it may be pertinent to cite the case of ITC Ltd, where, despite its tug-of-war with British major BAT, the ITC management, led by Yogi Deveshwar, was able to successfully carve out a long-term licensing arrangement for the manufacture of BAT?s top global brands in India. The ITC management took a long-term view of what would be in the best interests of ITC shareholders and is now co-existing with BAT, burying the past. The ITC example proves it is possible, if professionally-managed companies take a shareholder-centric view, to work together with other corporate groups and take the company?s interests forward.
There is nothing to suggest that the presence of an identifiable promoter group militates against the concept of professional management. In fact, some of the best-managed companies do have identifiable promoter groups. In these times when corporate governance and shareholder democracy are paramount, professional managers would be expected to act responsibly in the interests of the shareholders, rather than keeping their own interests in mind whenever a takeover attempt takes place. Sometimes, it?s better in the interest of the company to allow a change in management, rather than let the company, and consequently its share price, languish. Financial institutions are realising that. And hopefully the managers will, too.