Case . It emphasizes on the composition of board

Case
for Corporate Governance and fiduciaries

 Now the issue is going to be analyzed only
from the perspective of Corporate Governance Principles rather than merit of
business decision from the company’s point of view. We are also not going to
assess the legality of the decision and whether the decision needs concurrence
from institutional and individual investors in order to be legal, as it falls
under the domains of legal pundits and about what would be stand of SEBI in the
matter.  The scope of this analysis does
not take those aspects into account. The purpose of this analysis is only
academic and is being done with the sole purpose to assess whether corporate
governance issues are involved in the matter or not.  Corporate governance addresses the
principle-agent structural issue, found within large publicly quoted companies
today. 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 behalf
e.g. maximize profit, dividends and their share price.  Investors invest in shares and own them both
for dividend growth and capital growth. Even if we keep Dividend Irrelevance
Theory aside on account of imperfect market conditions –investors (including
minority shareholders) do expect both dividends with growth at regular intervals
and also capital appreciation.  The
essence of Corporate Governance regulations emphasis the need for treating
minority shareholders fairly. While taking decisions which would obviously be
backed up by majority shareholders in their own interest, corporations are
expected to cater to the aspirations and concerns if any of shareholders and
especially of minority shareholders. Thus Corporate Governance Codes lay
importance on being fair to all stakeholders rather than to shareholders in
more ethical and responsible manner. 
Thus Corporate Governance Codes have enlightened shareholders including
minority shareholders to keep scrutiny of decisions by board and assess their
impacts on future growth of company and its value.  The Corporate Governance Codes emphasis on
the transparency in managing the affairs of the company . It emphasizes on the
composition of board and necessity of having Non Executive Directors who would
be keeping tab on the decision making in the interest of shareholders. It also
emphasizes on the existence of Audit Committee of independent directors who
would be monitoring internal controls and safeguard company’s interest.  MSI- India has Board having non executive
directors in terms of Corporate Governance Principles, to keep tab on every
decision of the Board whether it is being taken in the best of interest of
shareholders including minority shareholders. MSI –India also has independent
audit committee.  The essence of
Corporate Governance principles also stress the importance of transparency in
decision making and taking everybody on the board at least on landmark
decisions. Taking everybody on board does not necessarily mean that every
faction to be consulted and to be taken into account before taking any decision
which may not be practicable in real life scenarios.  However use of management tools such as Mend
low’s Matrix Analysis which spells out process of identifying stakeholders and
according them treatment in terms of power and interest these stakeholders have
holds good in real life scenarios such as this. This would certainly obviate
the negativity either in the form of protest or displeasures by some factions
after the decision is taken.  Now there
are concerns expressed by institutional investors about sustaining long term
value of MSI – India’s shares and they have got every right to get those
concerns explained. The Board of MSI-India might have considered all the pros
and cons of the business decision about setting up of subsidiary by SMC Japan
rather by itself but from the perspective of corporate governance principles
either before taking such landmark decisions all the stakeholders should have
been taken on board by MSI India.  Now
since 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 of
institutional investors and minority shareholders and convince them merits of
the decision.  Corporate Governance aims
at enhancing corporate image and thereby value. By the present episode, unfortunately
MSI-India trusted brand name in Indian Auto Industry is coming up in the news
for wrong reasons. There are certain statements in this regard issued by
MSI-India management to allay investors’ fears but much more concentrated and
proactive approach in coming up with more facts and assumptions on the basis of
which the business decision was taken needs to be followed and more importantly
reaching out to minority shareholders and convince them about decision would go
long way in MSI-India’s corporate journey. It would not only enhance its image
among investors and stakeholders but also exhibit its capabilities to come over
such delicate situations and coming out victorious and making win-win situation
for MSI India and also its shareholders including minority shareholders.

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Conclusion

Corporations
face such dilemmas many a times in their journey towards achieving glory and
brand name. It is for the astute board to act in swift and decisive way to come
over the situations. If Board sincerely feels the decision has been taken in
the best of interest of MSI India and its shareholders in the medium and long
term, the next important stage would be opening up and taking all on the board
to convince them. It is very rare in reality that every decision would be unanimous
and welcome by all stakeholders but what lies in corporate strength of
Institution is to make sincere attempt in reaching out to all and putting the
facts and convince and if possible have safeguards to accommodate the fears and
apprehensions if there is headroom to do it. 
Let us hope MSI India would soon come out of it and would be able to
concentrate on the important projects including the present one to take it to
further glory in Indian Auto Industry.