Institutional EYE

Commentary on Corporate Governance Issues

United Spirits breaks away from Mallya and Diageo picks up the tab

The terms of exit suggest that Diageo and United Spirits Limited (USL) want a clean break from Dr. Vijay Mallya. While USL’s shareholders have been short-changed, the decision to untangle the company from the UB group is in their long term interest. Diageo is picking up the tab for this exit – but Diageo’s shareholders must hold its board accountable for its inability to break free from the Mallya stranglehold. We have all along believed that Dr. Vijay Mallya must step down from USL’s board. Given his status as a wilful defaulter, relating to loans extended to Kingfisher airlines, Dr. Mallya’ position as Chairperson risked freezing the companies access to bank finance and compromised USL’s o

OECD Principles: Are there more regulatory changes ahead?

From the time they were first rolled out in 1999, the OECD Principles of Corporate Governance (CG) have influenced global corporate governance regulations and practices. They have been updated twice, first in 2004 and then last year. The 2015 Principles were launched at a G20 meeting of finance ministers in Ankara in September 2015 and later endorsed by the G20 leaders in Antalya, also in Turkey, in November 2015. As a consequence, they are now referred to as the G20/OECD Principles of Corporate Governance. Why should these Principles matter and how do they affect Indian companies? When introducing the updated Principles, Angel Gurria, the Secretary General of OECD said that “today, half of

Royalty continues to outpace profits; shareholders must demand a greater say

Royalty has been a contentious issue for MNCs set up in India. In FY15, 32 MNCs paid out an aggregate Rs. 63 bn, which was almost 21% of their pre-royalty pre-tax profits – a growth of 10% over FY14 levels. MNCs based in India pay royalty because they use brands/technology know-how that have been developed outside India by their global parents and are a result of extensive product research and knowledge. Therefore, royalty is a legitimate payout – but, how much is the right amount? Graphic: Business Standard Our study of the 32 MNCs in the BSE 500 shows that over the past five years, aggregate royalty and related payments for these MNCs increased at a five-year CAGR of ~20% compared to a mer

Investor communication: Plugging information asymmetry

It’s well established that company managements always find time for institutional investors, giving these investors access to more information than retail investors. But even within institutional investors, some may be able to glean out more information than others, if only because they asked more questions. Companies in answering questions, may want to be more transparent, but they need to realize that ‘offline’ conversations cause asymmetry in information dissemination. Timely disclosures of such conversations must be made to all shareholders. SEBI’s Regulation 30 and 46 is an important first step in this direction. But SEBI needs to push corporates more. Equity as an asset class is more s

A field guide to shareholder redressal in India

Indian equity shareholders are increasing their proactive engagement with companies. A new class of investors are vocalizing their opinions and casting their vote, rather than exiting their shareholding at the first whiff of a disagreement with management decisions. In just the past one year, 37 resolutions have been defeated by shareholders. Changing regulations that empower shareholders, and proactive shareholder engagement are key reasons for this change. For long, retail investors were large holders in equity – but over the last decade, the retail has given way to FII’s and domestic mutual funds, accountable in turn to their depositors. Anecdotal evidence from other geographies suggests

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