Casefor Corporate Governance and fiduciaries Now the issue is going to be analyzed onlyfrom the perspective of Corporate Governance Principles rather than merit ofbusiness decision from the company’s point of view. We are also not going toassess the legality of the decision and whether the decision needs concurrencefrom institutional and individual investors in order to be legal, as it fallsunder the domains of legal pundits and about what would be stand of SEBI in thematter. The scope of this analysis doesnot take those aspects into account. The purpose of this analysis is onlyacademic and is being done with the sole purpose to assess whether corporategovernance issues are involved in the matter or not. Corporate governance addresses theprinciple-agent structural issue, found within large publicly quoted companiestoday. The ‘principals’ e.
g. thousands of company shareholders, hire ‘agents’e.g.
a board of directors, to run the company and add value on their behalfe.g. maximize profit, dividends and their share price. Investors invest in shares and own them bothfor dividend growth and capital growth. Even if we keep Dividend IrrelevanceTheory aside on account of imperfect market conditions –investors (includingminority shareholders) do expect both dividends with growth at regular intervalsand also capital appreciation. Theessence of Corporate Governance regulations emphasis the need for treatingminority shareholders fairly. While taking decisions which would obviously bebacked up by majority shareholders in their own interest, corporations areexpected to cater to the aspirations and concerns if any of shareholders andespecially of minority shareholders. Thus Corporate Governance Codes layimportance on being fair to all stakeholders rather than to shareholders inmore ethical and responsible manner.
Thus Corporate Governance Codes have enlightened shareholders includingminority shareholders to keep scrutiny of decisions by board and assess theirimpacts on future growth of company and its value. The Corporate Governance Codes emphasis onthe transparency in managing the affairs of the company . It emphasizes on thecomposition of board and necessity of having Non Executive Directors who wouldbe keeping tab on the decision making in the interest of shareholders.
It alsoemphasizes on the existence of Audit Committee of independent directors whowould be monitoring internal controls and safeguard company’s interest. MSI- India has Board having non executivedirectors in terms of Corporate Governance Principles, to keep tab on everydecision of the Board whether it is being taken in the best of interest ofshareholders including minority shareholders. MSI –India also has independentaudit committee.
The essence ofCorporate Governance principles also stress the importance of transparency indecision making and taking everybody on the board at least on landmarkdecisions. Taking everybody on board does not necessarily mean that everyfaction to be consulted and to be taken into account before taking any decisionwhich may not be practicable in real life scenarios. However use of management tools such as Mendlow’s Matrix Analysis which spells out process of identifying stakeholders andaccording them treatment in terms of power and interest these stakeholders haveholds good in real life scenarios such as this. This would certainly obviatethe negativity either in the form of protest or displeasures by some factionsafter the decision is taken.
Now thereare concerns expressed by institutional investors about sustaining long termvalue of MSI – India’s shares and they have got every right to get thoseconcerns explained. The Board of MSI-India might have considered all the prosand cons of the business decision about setting up of subsidiary by SMC Japanrather by itself but from the perspective of corporate governance principleseither before taking such landmark decisions all the stakeholders should havebeen taken on board by MSI India. Nowsince that stage has already been crossed (as decision has already been taken),it requires on the part of Board –MSI India to assuage the feelings ofinstitutional investors and minority shareholders and convince them merits ofthe decision. Corporate Governance aimsat enhancing corporate image and thereby value. By the present episode, unfortunatelyMSI-India trusted brand name in Indian Auto Industry is coming up in the newsfor wrong reasons. There are certain statements in this regard issued byMSI-India management to allay investors’ fears but much more concentrated andproactive approach in coming up with more facts and assumptions on the basis ofwhich the business decision was taken needs to be followed and more importantlyreaching out to minority shareholders and convince them about decision would golong way in MSI-India’s corporate journey. It would not only enhance its imageamong investors and stakeholders but also exhibit its capabilities to come oversuch delicate situations and coming out victorious and making win-win situationfor MSI India and also its shareholders including minority shareholders. ConclusionCorporationsface such dilemmas many a times in their journey towards achieving glory andbrand name.
It is for the astute board to act in swift and decisive way to comeover the situations. If Board sincerely feels the decision has been taken inthe best of interest of MSI India and its shareholders in the medium and longterm, the next important stage would be opening up and taking all on the boardto convince them. It is very rare in reality that every decision would be unanimousand welcome by all stakeholders but what lies in corporate strength ofInstitution is to make sincere attempt in reaching out to all and putting thefacts and convince and if possible have safeguards to accommodate the fears andapprehensions if there is headroom to do it. Let us hope MSI India would soon come out of it and would be able toconcentrate on the important projects including the present one to take it tofurther glory in Indian Auto Industry.