Indian boards better placed to advise on profitability of M&A

Less so in protecting minority shareholders

The boards of Indian companies, while being able to advise on the profitability of a merger or acquisition, are not in as good a place when it comes to safeguarding minority interest.

 

A better framework to help guide the board in doing so would aid better price discovery, according to a note entitled, ‘Mergers & Acquisitions and Corporate Governance’ on the website of the National Stock Exchange.

 

“…in terms of protecting minority shareholders, the Board may be less effective in the Indian context. There is little to guide board activity and no significant duties on directors or controlling shareholders towards Minorities,” said the report issued in October and authored by Vikramaditya Khanna, a member of the NSE Centre for Excellence in Corporate Governance and William W. Cook Professor of Law, at the University of Michigan Law School.

 

It added that lack of protection for minority shareholders has an adverse impact on shareprices.

 

“Failing to protect minorities could lead to more reluctance on the part of minorities to invest or result in a larger discount on share prices when investing. In either case, there is harm to capital markets in India,” it said.

 

Moves such as a recent one from the Securities and Exchange board of India to regulate schemes of arrangement, introducing more transparency and requiring the assent of public shareholders, may help according to the report.