In the recent past family owned companies have had to deal with disgruntled and frustrated shareholders. This is not only a huge distraction to the management but also impacts the employees adversely.
Prolonged shareholder disputes also impacts the brand value of the company. But there are no text book solutions for such family feuds.
The key reasons are mistrust among the shareholder family members coupled with a desire to occupy key positions in the company. The issue becomes more complicated if positions are demanded based purely on shareholding or birthright rather than merit. Another tricky question is how lending agencies should look at the issue of family feuds. Should they adopt a hands off approach or take proactive effort to ease the tensions?
Lenders often stay out of such family disputes and focus more on the loan outstanding and the prompt payment of interest. The reason being that it is not the job of the lender to intrude into the internal matters of the company.
Arbitration or mediation in a dispute between the shareholders is not the mandate of a lender. The tipping point will be when such squabbles affect the company’s financial performance. If it does, the lender may need to step in to stem the rot. The million dollar question is when and how do they step in?
Banks now realise that lending is a 24/7 activity. As part of the monitoring process it is now increasingly felt that lending agencies should raise some questions to companies when shareholder disputes crop up, more so, when they get discussed widely in the media. Lenders now need to protect the interests of shareholders not just their loans.
Banks garner deposits from the public and in turn lend them to corporates which are prone to disputes.
Like auditors are expected to deal with the society’s expectations and look at “Substance over Form” the same is true for lenders as well. A proactive approach by banks may result in the settlement of the dispute which otherwise could have taken years through the legal process.
There are examples of lending agencies notably NBFCs getting actively involved in arbitrating family feuds not necessarily to recover their dues but also for the overall larger good of the family. The best example is the involvement of senior banker KV Kamath in mediating the Ambani brothers dispute.
There is precious little that regulators can do in resolving these matters on a preventive basis. SEBI’s recent move to mandate all listed companies to disclose all family arrangements to the public is a laudable initiative.
Banks and lenders should seriously examine setting up a “Family Counselling Cell” with experienced professionals to take on the responsibility of solving vexatious shareholder disputes at early stages itself rather than stepping in when things go out of control.
The need of the hour is to protect the interests of all stakeholders. A telling statement by a senior family professional sums it all: “The only shareholder right a family member has is to discharge his duties and not demand his rights”.
If this is understood there would be no shareholder/family disputes. But that is easier said than done.
The writer is Chartered Accountant