The Satyam episode has led to debates about inadequacies in corporate governance norms in India. One of the issues currently being discussed pertains to the level of investor activism in the Indian markets. Compared to the developed economies such as the U.S. which has activist shareholders such as CalPERS and, more recently, activist hedge funds, the concept of investor activism is still at a nascent stage in India. It is rare for institutional investors (either domestic or foreign) to directly challenge company managements on governance issues. In fact, the rapid sales of the Satyam ADRs upon announcement of the Maytas deal represents a rare instance of investor activism in the Indian context, but even that took the form of investors staging the “Wall Street walk” (by exiting the company) rather than by directly confronting management to force their attention towards the issue.
“The main idea is to reduce/stop investments in companies that do not provide correct information to investors. Also, we are looking at ways to make our decision public, so that other investors are also aware of the company’s standing with fund houses,” said a leading fund manager.
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While all this is very well, it is not clear if there is sufficient will to put through such proposals. They will surely require acceptance not only by the investor community but also by the corporate sector in general. Further, unless such proposals are facilitated by the regulators (read SEBI in this case), the investor community may run the risk of creating frictions with companies they wish to blacklist. The following observation in the Business Standard report is evident of this:
“However, some analysts said that many fund houses could find it difficult to point fingers at specific companies as there would be fears of management access as well as business denials. “At present, this is just a proposal from some fund managers. To make it a success, we require cooperation from the entire industry and also the regulators. Otherwise, the entire idea could come under pressure from corporate houses,” said a chief investment officer.”