Are The Institutions Asleep?

The latest crisis in the company has been provoked by the chairman allegedly misbehaving with three of his top managers, whom he had summoned to Dubai. The managing director, who refused to accompany them as there was no agenda for the meeting, thereafter took the extraordinary step of joining the companys trade unions in seeking to remove Dunlop from Mr Chhabrias troublesome control. The financial institutions have a 33 per cent stake in the company, compared to Mr Chhabrias 44 per cent. But it is doubtful if the board would have been able to sack Mr Shukla if the institutions had opposed such a step. It is also not difficult to guess what would have been the outcome if the institutions had sought general shareholder support to deny Mr Chhabria the unrestrained hand that he has so far had in taking Dunlop rapidly downhill. But the institutions have sat on their hands, and on their shares, which continue to lose value.

In the case of Modi Rubber the situation is similar. The company is much better run and has considerable performing assets but has also been losing market share. The main reason for its lack of direction is the clash between two members of the controlling family, B K Modi and V K Modi. This precipitated into an ugly boardroom scene and humiliating treatment of one director. The generally respected Mantosh Sondhi resigned from the board citing the friction between the Modis. The institutions position here is even stronger than in Dunlop, since they control 48 per cent of the shares. They have in fact expressed their unhappiness over the friction at the top, and even indicated their desire to remove the Modis and bring in a wholly professional management. But for some inexplicable reason this change has now been stalled.

These two instances raise questions about the seriousness of the government in general and the finance ministry in particular, in carrying out its professed desire to improve corporate governance and to enco-urage the professionalising of manageme-nt. Unless the institutions act quickly and decisively, the finance ministry will be seen to be succumbing to lobbying by recalcitra-nt businessmen. This will be the worst of both worlds, with the government being he-ld to ransom by not just backward-looking trade unionists but also failed businessmen.