Shareholder activism can do good for companies and markets
Unlike their western counterparts, institutional investors in India aren’t known to be too active in working for their own interests.
By ET Bureau | Updated:
Unlike their western counterparts, institutional investors in India aren’t known to be too active in working for their own interests.
American financial institutions like large pension or mutual funds routinely clash with managements: some, like Calpers, are known to have forced changes in company boards when they felt that the current management didn’t merit their confidence.
So it is encouraging to note that institutional shareholders of Crompton Greaves, an engineering and capital goods company controlled by billionaire Gautam Thapar, have forced the company to sell a new acquisition — a corporate jet — for the price it was bought.
The buyer will be an unlisted Thapar group company, and the money will presumably come back to publicly-held Crompton. Once a darling of investors, Crompton has had a miserable streak in the markets recently: by October 5, it had shed nearly 60% of its value, compared to its 52-week high of Rs 349 per share.
With its margins under pressure, it’s not surprising that investors frowned upon indulgences like corporate jets. We hope that this will be a wake-up call for all institutional investors to take a closer, harder look at the companies they own and set wayward managements on the right track.
That’ll be a big change from the apathy that most institutional investors seem to have when it comes to doing something to improve corporate governance. The roots of this apathy can be traced back to the past, when most institutional investors were governmentcontrolled funds and insurers, and markets lacked depth or size.
In such situations, institutions played the role of market makers and lent support to stocks in times of turbulence, or invested at the command of government. Reining in managements was the last thing on their mind.
Things are very different now, with overseas funds having full convertibility to enter and exit their positions in individual stocks. Domestic banks and institutions now run funds of compelling sizes.
Markets are deeper and far more competitive. The need for good management is greater than ever before. What better time for shareholders to get vigilant?
American financial institutions like large pension or mutual funds routinely clash with managements: some, like Calpers, are known to have forced changes in company boards when they felt that the current management didn’t merit their confidence.
So it is encouraging to note that institutional shareholders of Crompton Greaves, an engineering and capital goods company controlled by billionaire Gautam Thapar, have forced the company to sell a new acquisition — a corporate jet — for the price it was bought.
The buyer will be an unlisted Thapar group company, and the money will presumably come back to publicly-held Crompton. Once a darling of investors, Crompton has had a miserable streak in the markets recently: by October 5, it had shed nearly 60% of its value, compared to its 52-week high of Rs 349 per share.
With its margins under pressure, it’s not surprising that investors frowned upon indulgences like corporate jets. We hope that this will be a wake-up call for all institutional investors to take a closer, harder look at the companies they own and set wayward managements on the right track.
That’ll be a big change from the apathy that most institutional investors seem to have when it comes to doing something to improve corporate governance. The roots of this apathy can be traced back to the past, when most institutional investors were governmentcontrolled funds and insurers, and markets lacked depth or size.
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In such situations, institutions played the role of market makers and lent support to stocks in times of turbulence, or invested at the command of government. Reining in managements was the last thing on their mind.
Things are very different now, with overseas funds having full convertibility to enter and exit their positions in individual stocks. Domestic banks and institutions now run funds of compelling sizes.
Markets are deeper and far more competitive. The need for good management is greater than ever before. What better time for shareholders to get vigilant?
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