The recent market fall is not all about economic crisis. Implementation of healthy corporate governance is another factor that led to the wreck
If you think that the fall in share prices of major companies during last two months has happened only because of prevailing economic crisis in India, it is time to think again. While there is no doubt economic crisis has eroded value of many stocks, what has added fuel to the fire is the deficiency in implementation of healthy corporate governance practices by several companies. Investors have lost huge amount of money not only because of volatility but also because of non-compliance with corporate governance policies by many companies. Corporate governance practices exist only in glossy pages of annual reports of these companies and are yet to be implemented in its true spirit. Let us look at some cases to understand this.
Yes Bank’s share price, a darling of many analysts and investors, has fallen to around Rs280 from its all-time high of Rs547, in a span of less than three months, which means about 50% loss in the value. Share price of the Bank fell by 17% on 31 July 2013, when the corporate governance issue came to the fore. Madhu Kapur, the widow of Ashok Kapur, one of the promoters of the bank along with Rana Kapoor, raised corporate governance issues in an affidavit filed before the Bombay High Court over the rejection of her daughter Shagun Gogia’s nomination as a director.
Another company, Gitanjali Gems, has been in news for multiple reasons. Share price of the company has already tanked more than 90% from its all time high and nobody knows what will be the lowest level for the stock. After market regulator Securities and Exchange Board of India (SEBI) cracked down on Prime Securities, the stock price of Gitanjali Gems started tumbling. This was a case of alleged market price manipulation and lack of transparency and can be associated with deficient corporate governance practices once again.
Recent fall in shares of Financial Technologies and Multi Commodity Exchange Of India Ltd (MCX) are also broadly linked to corporate governance issue in which though regulator failed to take note of regulatory deficiencies, the company also did not set high standards of voluntary compliance with regulation.
There are many such examples in the recent times where companies have failed to follow corporate governance practice causing huge loss to the shareholders. Opto Circuits is one such example, where the share price had tumbled at the beginning of the current year after it failed to notify resignation of its company secretary on time. Once a premier stock, it has now become a penny stock. Infosys also faced issues of corporate governance when Narayan Murthy re-joined the IT company thus raising doubts on high standards set by him, though this did not cause loss to the shareholders.
There are many companies, which have lost more than 90% of the value over the last one year. Many of them have seen unprecedented fall in the share price because of corporate governance issue.
In India, companies fail to meet even the basic tenants of corporate governance. Let us look at transparency, which is one of corner stone of corporate governance. ITC on its approach to corporate governance, mentions its approach towards transparency as, “ITC believes that transparency means explaining Company's policies and actions to those to whom it has responsibilities. Therefore, transparency must lead to maximum appropriate disclosures without jeopardising the Company's strategic interests. Internally, transparency means openness in Company's relationship with its employees, as well as the conduct of its business in a manner that will bear scrutiny. We believe transparency enhances accountability.”
This sounds great and ITC has been following this aspect of corporate governance. However, do all the companies follow it? ‘Conduct of business in a manner that will bear scrutiny’ evades many companies. Shareholders, especially the minor ones, have no idea about such transparency, as many companies do not find it necessary to be transparent. Minor shareholders are the ones who suffer major losses. The recent case of NDTV highlighted by Moneylife points this aspect.
While companies are expected to take responsibility to set exemplary standards of ethical behaviour, both within the organisation as well as in their external relationships, there are cases like the Micromax, where the mobile handset maker’s MD is caught allegedly bribing MCD officials. Other constituents of corporate governance such as, trusteeship, empowerment and accountability, continue to evade many companies. Companies like Educomp reach a stage where salaries not paid for long time to the employees with management justifying the failure as the risk arising from prevailing market conditions thereby putting aside failure of proper corporate governance compliance.
A series of lapses on corporate governance front shows the risk that Indian investors are exposed to. We know that a chain is as strong as its weakest link. The deficiency on corporate governance front is working out as the weakest link in case of many Indian companies. Time has come when we should not buy stocks only on the basis of fundamental and technical analysis. Need of the hour is corporate governance analysis. Unfortunately, the data points available here are very limited.
Free-gifts are often ‘recycled’ and in the case of a landless peasant, nothing prevents this legacy being misused. Giving land on a free of cost basis is a grave mistake that any government can make, as this simply will kill the initiative to create wealth
The National Land Reform Policy that has been prepared by the Rural Development Ministry, in its draft form, is in circulation, which is based on the consultations with other ministries.
As and when it is passed, it is likely to be a crowning achievement for Jayaram Ramesh, the minister and will give a tremendous boost to the Congress party when the elections are held in 2014. The opposition are now between the devil and the deep sea-they cannot oppose the Bill as it will cost them a heavy turn against by it beneficiaries, and so, they need to find a way to support it to garner public support!
What does this National Land Reform Policy propose to achieve? It proposes to redistribute excess government land to the landless poor, cover every single village in the country and provide equal opportunity and right for women to own their land. In India, traditionally land has always been "owned" by the "karta" or head of the family, though, in some parts (mostly South) land has been bequeathed to daughters by their parents. Joint ownership has been possible. Land has been given as a part of "dowry" where the benefits accrue to the women, but she cannot sell it!
The available statistical land data shows that 47% of land is used for agriculture; 22.6% is forested and 13/6% is fallow. From time to time, poor monsoon rains or floods have played havoc with our agriculture.
While the full details of the Policy have not been made public, presumably because of the expected comments and suggestions from various state governments, who have to play a vital role in its execution, this proposal will be gigantic in operation. The actual process of identifying excess government land, separating agriculture and non-agriculture categories and ensuring that these are not illegally occupied and used is not easy task to comply. It is a tall order, implementation of which, will take at least a decade or two, considering the country's size, population and various customs and practices in different states.
We must bear in mind that, in the recent past, land acquisitions have caused enormous problems in setting up huge industries in many parts of the country, POSCO, ArcelorMittal, Zuari and Tata Motors being recent examples. Therefore, for the time being, we shall restrict our thoughts to the National Land Reform Policy and how it can be implemented.
Looking at agriculture, a large percentage of workers is bonded labour of one kind or another. Land-owning farmers who actually till their own land are a minority. Because agriculture is a seasonal in nature, there has been migration of farm labour to the towns and cities, specially the "landless" people. The intention of this Reform policy is laudable, but these farmers have now settled outside villages, in towns and cities, and will therefore have to be enticed to return back to their roots and take up agriculture again. Not an easy task, by any means!!
The landless labour who are now working for a pittance for the land owning zamindars and feudal lords, though we do not "accept" their presence anyway, will now want to "lodge" in their claim for getting free-land from government under the Reform Policy, thereby creating a labour vacuum in the present setup! That these labourers may be deep in debt owing their lifetime in servitude to the landowners or the moneylenders in these villages are more horrendous issues to write about.
Surely, all these factors may have crossed in the minds of authors of this Proposal. It, however, remains to be seen how they propose to handle these explosive issues, when the details are made public. This we shall await with interest.
It must be admitted that the Reform Policy is practically a time bomb that will explode if all these factors are not suitably covered and amendments are made as we go along. Or, it may be worthwhile, for the government, to implement this policy, on a trial and error basis, starting with one state, and slowly moving on to the others.
If at all such a distribution of excess land is mandated, it must be ensured that the government fixes a price/value for the land allotted, but ensuring that the ownership can be only acquired after a certain period of actual use, and that too on paying the price determined at the outset. And to ensure that this is not misused, the law must provide that such land cannot be sold at all, and that it can be transferred to the members of the family, who must continue to be involved in agriculture. And to ensure all these happen, if the farmers are returnees from cities and towns, proper rehabilitation must be provided.
We must remember that free-gift has no value in society today. In simpler sense, it is ‘recycled’ and in the case of a landless peasant, nothing prevents this legacy being misused. Giving land on a free of cost basis is a grave mistake that any government can make, as this will simply kill the initiative to create wealth.
We must remember to teach a person to catch a fish; not give it free!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
Presence of several foreign and indigenous terrorist groups amid a worldwide alert over al-Qaeda intercepts, pose a potential danger to US citizens throughout Pakistan, according to the US
The US government on Friday evacuated all non-emergency staff from its consulate at Lahore, citing specific terrorist threat against the facility.
It also issued a travel warning advising all citizens to defer unnecessary travel to Pakistan amid a worldwide alert over al-Qaeda intercepts.
A senior State Department official said, “Today, the Department of State ordered the departure of non-emergency US Government personnel from our Consulate General in Lahore, Pakistan. We are undertaking this drawdown due to concerns about credible threat information specific to the US Consulate in Lahore.”
As such, the State Department is taking appropriate steps to protect its employees and others who may be visiting its facilities, the official said on condition of anonymity as the US issued an updated travel warning for Pakistan.
Noting that the presence of several foreign and indigenous terrorist groups pose a potential danger to US citizens throughout Pakistan, the travel advisory asked them to defer all non-essential travel to Pakistan.
US citizens remaining in Lahore despite the travel warning previously in effect should limit non-essential travel within the country, be aware of their surroundings whether in their residences or moving about, make their own contingency emergency plans, enrol their presence in Pakistan through the Smart Traveller Enrolment Program (STEP), the Senior State Department Official said.
According to the travel warning, across the country, terrorist attacks frequently occur against civilian, government, and foreign targets.
“Attacks have included armed assaults on heavily guarded sites, including Pakistani military installations. The Government of Pakistan maintains heightened security measures, particularly in the major cities,” the travel warning said.
“Threat reporting indicates terrorist groups continue to seek opportunities to attack locations where US citizens and Westerners are known to congregate or visit. Terrorists and criminal groups regularly resort to kidnapping for ransom,” it said.
Most of al-Qaeda’s core leadership is believed to reside in Pakistan, and the city of Lahore is home to other extremists sympathetic to the group. Lahore is well known as a base for Lashkar-e-Taiba, which is considered a terrorist organisation by the US.