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British hedge fund TCI has stirred up hornet's nest. FII circles in India have begun to ask blunt questions about Governance issues of listed PSUs.
Institutional Investors Advisory Services (IiAS) organised a client conference recently on the issue.
FIIs' fears
According to sources, at the conference foreign investors expressed strong reservations about governance practices of the Indian Government-owned companies.
Mr Shriram Subramanian, Managing Director of InGovern Research Services, India's first institutional proxy advisory told Business Line that the TCI letter to Coal India and subsequent actions by the independent Directors of Coal India, in opposing the move to long-term fuel supply agreements, show that activism could pay.
“The larger issue is that the Government plays the role of regulator, majority shareholder and manager in PSUs. This needs to be set right,” he added.
TCI's activism welcomed
Institutional investors needed to be more vigilant and engage with companies in a constructive manner to set right many of the corporate governance issues that dog India Inc.
According to Espirito Santo, in an environment where enforcement is still weak, TCI's rare example of activism is welcome.
Mr Surabh Mukherjea, equity head at Ambit Capital, said the message that the Government did not care about the corporate governance was significantly underlined.
“As it is Indian law is skewed in favour of the promoters. TCI's move has re-emphasised the need for revaluation of governance risks for global investors in India,” he said.
Historically relevant ministries exercised near total control over PSUs, Espirito noted. “The extent to which that has changed depends on the sector and company. But board authority in most PSUs remains pretty weak.
“They often have no say in CEO selection, appointment of other directors, and key strategic decisions — instead the concerned Ministry takes the decision.
“In theory, governance reforms now allow the board to perform an obstructive role, but in practice this is rarely the case.”
Espirito further said that “the governance conflict is greatest where the companies are involved in resources of national strategic importance, like coal, steel, oil, fertiliser, etc.”
>jayanta_mallick@thehindu.co.in
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