I’ve realized how crucial corporate governance is in making smart investment choices. Early on, I overlooked this and ended up regretting investments in companies with questionable practices, like false news or promoters misusing funds.
To tackle this, let’s start a thread to discuss corporate governance, irrespective of underlying financial performance. We can highlight what we like and what we don’t in the companies we come across. It’ll help us identify which ones really care for minority investors and which don’t.
A few years ago, Moneylife ranked firms based on governance, featuring companies like Natco Pharma and Thejo Engineering. A detailed analysis evaluating companies across areas like statutory compliance, board functioning, and shareholder communication. They dug into reports, news, and filings to objectively assess each company. This rigorous approach helped form a final shortlist of five, including KPR Mill, Laurus Labs, and Suven Pharma, recognized for their outstanding governance.
So, I’m curious: what companies do you think are great with minority investors and governance? And which ones don’t measure up?
I can start with something from recent memory, which I thought was remarkable - I recall how the hdfc-hdfc bank merger, the biggest ever merger in India, remained a complete secret until the official press release. Can’t say for certain that the same will have been the case with other groups.
So here there can be multiple ways and instances where companies have shortchanged minorities. It can be by selling a company’s subsidiary to the promoter at a dirt cheap valuation or buying a promoter-owned entity at euphoric valuations. Indian promoters are famous for siphoning cash. Recently came across a company, where the promoter of the listed Indian company lent his friend an amount of 5 crores which was an interest-free debt. First of all, one should question why has this money been given out interest-free because this money also belongs to shareholders. Finally, after 2 years this loan gets written off and this is the silent looting of shareholder wealth.So as an investor, the first job when you come across any company is to check whether the company is minority friendly or not.
Okay!
You can look at Gujarat Automotive to understand how are minority shareholders funds getting diverted.
You can look at Meghmani Organics where promoters amalgamated privately owned entities at absurd valuations which led to an increase in the promoter’s stake in the listed entity.
Venky’s has a promoter-owned entity in the same business which is much larger than the listed entity.
