Last week saw a uncharacteristically satisfactory development to a corporate governance issue. Generally, when a company's promoters decide to play fast and loose with the interests of the minority shareholders, they get away with it. However, it appears that Suzuki Motors may have beaten the retreat in the face of unusual opposition from domestic institutional investors. The object of the protest by Maruti's minority shareholders was parent company (and Maruti's promoter) Suzuki's decision to start manufacturing independently of Maruti in India.
Suzuki planned to make cars in its new plant in Gujarat and make Maruti buy these cars, something that would be against Maruti's interests in a number of ways. The institutional investors which protested loudly were seven mutual funds (HDFC, Reliance, UTI, DSP BlackRock, SBI, Axis and ICICI Pru) as well as LIC. For now, Maruti has said that it will seek the approval of minority shareholders before entering into the arrangement and also announced a number of other steps that address objections raised by the minority shareholders.
Of course, it's still possible that eventually, when the voting is done the final arrangements will still not be to the satisfaction of the group of shareholders who have protested. However, what's encouraging about the whole affair was that a class of sharehlders who rarely raise their voices did so and promoters were forced to listen.
Back in 2010, SEBI had asked mutual funds to formulate guidelines on exercising their voting rights as shareholders. Later, it was made compulsory for AMCs to reveal their voting record publicly. Unfortunately, AMCs generally abstain from voting quite a lot, although there are exceptions. Franklin Templeton, Birla Sun Life, DSP Blackrock, JP Morgan and Reliance vote on almost every resolution. At the other end of the spectrum, some AMCs with large equity holdings like ICICI Pru, UTI and Tata hardly ever bother to vote.
Funds need to get more involved in monitoring the companies they invest in. It's one of the few ways that governance can improve.
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