CGBE Handout # 5

Corporate Ownership and Control
Ownership pattern is crucial as it decides the power of the promoters to influence decision-making process at the Board level. This also happens due to dormancy of major shareholders to muster support of the remaining mass of shareholders scattered across the length and breadth of the country. On an average, Indian promoters seem to hold largest stake followed by financial institutions, public shareholding, and foreign investors. Since public shareholders do not participate in the decision making process in an effective manner, the financial institutions are suitably poised to challenge the undesirable governance practices in which the BOD indulges.

In India, the promoters’ ownership is clustered in the range of 25-75% while public ownership and those of the financial institutions is in the range of 10-40% and 5-40% respectively. According to a survey conducted by CMIE in 1999, Directors and top 50 shareholders held 43% shares, government and financial institutions held 14% share, public and others held 29% shares and foreign investors held 14% shares.

The above statistics is alarming. Traditional business families who also have controlling stakes in large holding companies thus own most of the Indian companies. They exercise various control mechanism to ensure maximum influence in the board room.

Control Mechanism:
Election of Directors
Amendments in Company documents
Approval of Extra-ordinary transactions
Appointment of Auditors
Amendment in the internal statutes

Ownership pattern and control mechanism invariably jeopardize the interest of minority shareholders, employees, consumers and above all, the State. The provisions of Corporate Governance are therefore invoked to protect their diverse interests.

A few of the protective measures are as under:
Shareholders interests and Birla Committee Report:
Shareholders should use Annual General Meetings to ensure good governance
Shareholders have the right to participate in and be adequately informed on major corporate decisions.
Shareholders should show greater degree of interest in the appointment of Directors and Auditors
Companies should send half-yearly declaration of financial performance including summary of significant events to all the shareholders.
Investors’ Relations under Clause 49 of the Listing Agreement
1. Installation of Shareholders’ Grievance Committee: Non-executive Director should be appointed as the Chairperson of the Committee that takes care of such issues as share transfers, non-receipt of copy of annual return, and non-receipt of declared dividends.
2. Providing information regarding General Body Meetings covering such points as location, date and time of three previous AGMs; special resolution put to vote through postal ballot; details of voting pattern; persons who conducted the postal ballot, resolutions proposed to be conducted through postal ballots; and procedure of postal ballot.
3. Means of communication adopted to communicate with shareholders: Quarterly results through website of the company/stock exchange.
4. Information to shareholders on Directors: In case of appointment of a new director/reappointment of a director, the shareholders must be provided with the following information: (a) a brief resume of the director (b) nature of his expertise in specific functional area (c) names of the companies in which the person also holds directorship and membership of the committees of the Board (d) shareholding of non-executive directors.
5. General information: Following information must be provided to the shareholders: (a) particulars of AGMs (b) financial calendar (c) date of book closure (d) dividend payment date (e) name of stock exchange where the company is listed along with the stock code (f) market price data and performance of the company.