Often, I am asked by promoters why they are being asked to explain everything to shareholders, despite owning a majority of the company’s equity and having built it from scratch to scale. I have worked most of my professional life with Indian promoters, and I find that their ability to take investment decisions on a long-term view of a business or industry cycle is unparalleled.
But then, does that give them a licence to run their entities, even after listing, like personal fiefdoms? Isn’t it time for the Securities and Exchange Board of India (Sebi) to regulate firms with high promoter stakes a little differently ? What’s the role of a company’s promoter? Is this person expected to work primarily for the benefit of other shareholders? Just as I am often posed this question, I am sure other advisors are also asked: How do promoters protect their own interests too? In India, promoters retaining large stakes goes back to historical trust deficits between them and governmental authorities. As businesses were often portrayed in negative terms in socialist times, capitalists sought to protect their interests by maintaining substantial ownership, often obscured through friends and trusts holding larger stakes than reflected in official records.
This helped secure companies from takeover attempts and keep disruptive dissent at bay. Compounding this scenario is the evolution of corporate governance rules in India, at least in the decades since economic liberalization, largely influenced by industrialists who chaired regulatory advice panels set up by regulators.
Consequently, there exists palpable reluctance within industry to subject itself to more scrutiny. This resistance is evident in the reluctance to separate the roles of
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