FIs get a raw deal from Sebi’s Birla panel

“The sudden dislike of corporates for institutional directors is surprising. We were strict with companies in enforcing transparent and impartial decisions. We stopped the open loot by promoters who tried to hike stake in their companies through preferential allotment at very low prices in the early ’90s. We forced them to hike stake at market prices,” he said, adding, “there is no truth in the argument of insider trading by institutional nominees. If you look at some of the corporate deals in the last two years, you can find that promoters were indulging in insider trading.”

The market regulators SEBI had launched a probe into allegations of insider trading in Otis Elevators. When the Tatas recently sold their stake in Goodlass Nerolac, its share price and volumes shot up before the announcement of the deal raising doubts about insider trading. Normally when a company plans a major expansion or takeover or sell-out move, the management approaches the board only in the last stage for aformal approval. This means senior company officials get more time and information than directors.

Currently, in many companies, common investors who hold wide shareholding — even more than promoters and institutions — are not represented on the boards. The question remains: who will look after their interest? The issue of exercising voting rights come only in annual general meetings. “Funds are being siphoned off even when institutional nominees are present. If they are absent, it’s like giving the key of the house to a robber,” said an investor.

Moreover, in many big companies like Larsen & Toubro and BSES, there are no promoters and FIs are supervising the management which is professionally run. FIs hold nearly 40 per cent stake in L&T and BSES. “Isn’t it like opening the doors of the vaults and waiting for robbers to come in? When you have a stake in the ownership of a company, you have every right to demand representation on the board. L&T and BSES will end up like rudderless boats,” said ananalyst.

Likewise, there are many instances where promoters of one company are on the boards of other companies. While on the board of other companies, they also get price-sensitive information about the other company. For example, chairman of a multi-utility vehicle maker based in Mumbai is also on the board of a host of companies. He is also in a position to do insider trading. It’s not limited to FI directors.

Currently, IDBI, UTI, LIC and GIC have nominees on the boards of hundreds of companies. Once the SEBI norms on this proposal are notified, nominees will have to pull out from the boards. This proposal has also nullified the efforts of IDBI which has worked out its own guidelines for nominees on the boards of companies.

The SEBI panel, chaired by Kumar Mangalam Birla, had further suggested that FIs can be given when companies default. However, FIs are not convinced. “There should not be defaults… such a situation should not be created. Now most of the family run companies are packed withfamily members with little knowledge and understanding of the market and industry. We need corporate governance but don’t target FIs alone,” said an institutional source.

One analyst also questioned the power of the SEBI to push such a major proposal which comes under the Companies Act. This may be one reason for the SEBI and the panel to use the listing norms of the stock exchange to enforce the proposal.

Birla Plan