Monday, May 27, 2013

Licences for new banks in India

Early next year, the Reserve Bank of India is likely to permit formation of new banks. Though the RBI initially was against allowing industrial houses to enter banking in view of possible vested interests, the Ministry of Finance succeeded in vetoing RBI's resistance.

Will corruption be involved in sanctioning licences? Only the pathologically naive will think otherwise.

The Economist magazine has a perceptive take on this. It says, "In corruption-afflicted India wild tales of bribes being paid to political parties abound: $75m is the asking rate for a licence, gossips the CEO of a financial firm. He thinks the Supreme Court will end up investigating. The head of a bank says he has been told by an opposition politician that if his party is in power after the next election , 'the winners of the licences will go to jail'." An intriguing twist to the Winner's Curse?

Sunday, May 26, 2013

Treatment of shareholders

Shareholders are treated shabbily everywhere. The following article appearing in NY Times shows how.

"Shareholders? Fuhgeddaboudit!By GRETCHEN MORGENSON

Published: May 25, 2013

WE are nearing the end of proxy season, that once-a-year moment when shareholders can speak their minds, sort of, to the officers and directors overseeing their companies. But that doesn’t mean corporate boards always listen.

Consider what happened after the May 14 annual meeting of the CommonWealth Real Estate Investment Trust. Joseph L. Morea, a CommonWealth trustee, was up for re-election, and more than three quarters of the shares voted were cast against him. Under the company’s guidelines, this meant that he had to resign. CommonWealth, as is typical at many companies, requires that its independent directors resign if they don’t receive majority support from shareholders for their re-election.

Mr. Morea dutifully stepped down. But that was not the end of it. The next day, CommonWealth said its board determined that Mr. Morea’s loss seemed related to its battle with outside shareholders hoping to oust the trustees, rather than to any personal failings. As a result, it said, the board had “requested that Mr. Morea accept appointment to the vacancy created by his resignation.” So he returned to the board and will serve on three of its committees: those relating to audit, compensation — and nominating and governance.

You’d never know that the shareholders, a majority of whom voted against Mr. Morea, were the actual owners of CommonWealth. As a point of reference, the trustees who reappointed him to the board own only one-quarter of 1 percent of the company’s shares. CommonWealth declined to comment further.

Flouting its own trustee-election policies, as CommonWealth did, was brassy. But its board is by no means the only one that has thumbed its nose at concerned shareholders. A recent maneuver by Urban Outfitters, the retailer of youthful casual clothing, accessories and housewares, brings a new twist to the concept of good shareholder relations.

A vocal band of institutional investors in Urban Outfitters is concerned about board diversity. In the last three years, these investors have argued that the company’s all-male board is too homogeneous. They have mounted shareholder proposals requesting that the board focus on nominating at least one female or minority director. Shareholders will vote on the third such proposal on Tuesday at Urban Outfitters’ annual meeting in Philadelphia, where Richard Hayne, the chairman, C.E.O. and a co-founder, will preside.

To support their argument, these shareholders, including Calvert Investment Management, the Connecticut Retirement Plans and Trust Funds and the New York State Common Retirement Fund, cite research showing that companies with some heterogeneity among directors outperform those with none.

Studies done in 2007 and 2011 by Catalyst, a nonprofit organization that promotes opportunities for women in business, found that in two measures — return on sales and return on invested capital — companies with more women as directors significantly outperformed those with fewer.

“We’ve taken a very strong position that diversity on boards better positions a company to understand what’s going on in an increasingly diverse marketplace,” said Thomas P. DiNapoli, the New York state comptroller, who oversees the retirement fund.

Given that so many of Urban Outfitters’ customers are women, you might expect its directors to embrace the idea of adding a woman to its six-member board. But over the years that the diversity proposals have appeared on Urban Outfitters’ proxies, the company has urged shareholders to reject them. In this year’s filing, for example, the company said that imposing gender and minority requirements on the board selection process would be unduly restrictive and “would undermine the company’s holistic evaluation of candidates.”

Shareholder endorsement of the diversity proposal has been rising, though. It reached 39 percent in 2012, up from 23 percent of shares voted in favor of it in 2011.

And this support grows even larger if you remove from the calculation the shares owned by company insiders, who presumably voted their shares against the proposals according to the board’s recommendation. Subtracting the more than 30 million shares held by Mr. Hayne and his wife would bring the outside shareholder support for last year’s diversity proposal to 52.3 percent.

WITH that as a backdrop, let’s turn to this year’s proxy statement. In that document, in which companies describe the directors up for election, Urban Outfitters announced that it was — drum roll, please — nominating a woman to its board. It asked shareholders to support her at the coming meeting.

So who is the holistically evaluated candidate? Margaret Hayne, the wife of the chairman. Ms. Hayne, who is president of Urban Outfitters’ Free People division, joined the company in 1982.

Talk about poking your shareholders in the eye with a stick.

I asked Urban Outfitters about its nomination of Ms. Hayne, and whether it thought that would satisfy shareholders who were concerned about diversity. Neither the company’s director of investor relations nor Mr. Hayne responded to multiple requests for comment. Ms. Hayne could not be reached.

But Mr. DiNapoli took a dim view of the move. “To nominate someone who is also a long-term employee, an insider and married to the C.E.O. and chairman,” he said, “doesn’t pass the smell test of really trying to find someone that adds to diversity and is going to be an independent voice.”

Board diversity is not the only matter irking Urban Outfitters’ shareholders. Until this year, for example, its directors served for staggered terms, making it harder for shareholders to oust a group of them at once.

At the annual meeting in 2012, however, a majority of shareholders voted to declassify Urban Outfitters’ board, which would require directors to stand for election each year. The company’s directors again advised shareholders to vote against this proposal, but were unpersuasive. Instead of eliminating the staggered terms immediately, though, Urban Outfitters is making the change over the next few years.

Note well: Urban Outfitters is an extremely successful company. Over the last 12 months, its shares have risen 49 percent, and, last week, it posted record sales and a 39 percent earnings jump for its most recent quarter.

Perhaps the company’s directors think that superlative performance means that they can brush off shareholders’ concerns. Still, it hardly seems likely that adding an independent woman to the board would damage Urban Outfitters’ performance. And who knows? It might even enhance it. "

Chidambaram's palaver

Presiding over a Canara Bank function on 25th May, the Finance Minister lamented that our financial institutions are lacking capacity to handle rising volumes. This is indeed an enigmatic statement that is not borne out empirically.

He also asked rhetorically, "In the senior level (in financial institutions), are employees able to take up multi-task?" One expects more meaningful observations from a Harvard-educated minister.

On Rajat Gupta

The following meaningful paragraph is from Anita Ragavan's essay in NewYork Times magazine:

"Speaking at Columbia University around this time, Gupta reflected on his new ambition. “When I look at myself, yeah, I am driven by money,” he said. “And when I live in this society, you know, you do get fairly materialistic, so I look at that. I am disappointed. I am probably more materialistic today than I was before, and I think money is very seductive.” He continued: “You have to watch out for it, because the more you have it, you get used to comforts, and you get used to, you know, big houses and vacation homes and going and doing whatever you want, and so it is very seductive. However much you say that you will not fall into the trap of it, you do fall into the trap of it.” "

Can there be a better example of a self-fulfilling prophecy?

Saturday, May 25, 2013

How sincere are our ministers?

"Government will do everything to strengthen SEBI", said the prime minister on 24th May. He was addressing the silver jubilee function of SEBI. Is that why he felt compelled to give this assurance? Sadly, government's actions speak otherwise. The former Chairman, C.R.Bhave was reportedly doing well and regulating the capital market efficiently. His term was not extended though he was eligible and a controversial person was appointed in his place.

The prime minister continued his homilies. "I would urge SEBI to ensure that good quality debt issuances are encouraged and a larger number of corporates access the debt market for financing." It is government's job to ensure the attractiveness of debt as a source of finance. What role can SEBI play in this?

Finance minister's observations at the same function were equally hilarious. "A large amount of money was flowing into India. In 2012, India received portfolio investment of $31 billion. Till mid-May this year, the FII investment is $17 billion. We need to maintain the momentum." Within a few minutes, he sang a different tune. Dealing with the possible impact of scaling down of stimulus by the American Federal Reserve, he quipped, "The money flowing into India is still modest. It is still a fraction of the overall liquidity that is being pumped into the system.I think there may not be a great impact on India. I don't see why we should not get what we are getting even if they withdraw from Quantitative Easing."

Unfortunately, economic developments do not respect ministerial double-talk.

Wednesday, May 15, 2013

Kapil Sibal's cart before the horse

Kapil Sibal has started his tenure as Law Minister predictably with a bang. He has recommended, in agreement with the Finance Minister, that the government may get into conciliation proceedings with Vodafone on Income Tax department's claim on the company in the Hutchison issue.

The issue was needlessly and unethically precipitated by the government when the present President was the Finance Minister. Instead of gracefully accepting the Supreme Court's verdict, the government with Singh as prime minister did not realise the folly of amending the law, albeit under the facade of clarifying the legislative intention, retrospectively.

In essence, the IT department was under a legal compulsion to raise its demand on Vodafone. The logical step now must be to annul the retrospective amendment by a fresh legislation and then sort out the Vodafone matter.

It will be disgraceful for the government if it enters into a conciliation process with Vodafone and then fails to obtain parliament's approval. India will become a laughing stock for the second time in the same issue.

Ministers need patience and foresight. Adoption of hasty steps perhaps to prove one's utility to the government will only land the country in a bigger mess. It is not surprising that the Attorney General who is already under a cloud has been bullied into reversing his own opinion in the matter regarding conciliation. Obstinate minister and compromised legal counsel are a lethal combination that will only ensure downfall for both.

Sibal says he would work to ensure that legal processes and procedures should not be an impediment to economic growth, but must fuel it. He prioritises economic growth over justice. This is a gross misunderstanding of Law Minister's role. Ministers need to be subtle and sophisticated, not brutish and boorish.

Tuesday, May 14, 2013

Congress vs Supreme Court

The Supreme Court aptly called the CBI a 'caged parrot' mouthing its masters' voice. A truer statement was never made. Truth is bitter, especially to the Congress party's spokespersons. Digvijaya Singh, the ponderous comedian, has ridiculed the Supreme Court for what he calls disempowerment / belittlement of institutions like the CBI.

All institutions in India have been systematically weakened by the Congress party. The Supreme Court occasionally raises its lawful voice. The blustering baboons of the Congress immediately try to browbeat the Court. Congress party has a pathological intolerance for sane advice. It only believes in bullying the institutions. Everyone knows how it has belittled the CVC, CBI etc. It is happy only in the company of lackeys like the Chairperson of the Press Council of India. The loudmouth is silent on the shameful deeds of Bansal and Ashwani Kumar.

The 'honourable' prime minister brought two of his close friends into his cabinet. These two have made dishonourable exit from the ministry. Yet the prime minister carries on business as usual. Power corrupts. Nine years of power corrupts absolutely.

Sunday, May 12, 2013

Failed State: Pakistan or India?

We are fond of saying that our 'distant neighbour' Pakistan, unlike us, is a failed state. One now wonders which is really the failed State.

Supreme Court of Pakistan unseated a corrupt prime minister and disenfranchised a former dictator President. It even ordered enquiries against the current President.

Did the Indian Supreme Court ever hold the emergency imposed by Indira Gandhi unlawful? Indians voted against the dictator not because of her unconstitutional ways but because of excesses in family planning.

Imran Khan despite his razzmatazz is not elected to power. He would have been more successful in India. His tie-up with the Taliban was thumbed down by voters in Pakistan.

It appears that there are more checks and balances in Pakistan than in India. A corrupt political party, PPP was voted out of power in Pakistan. One is not sure what will happen in India. If all parties are corrupt, which one do you vote in?

Does Indian President ever question the prime minister whatever be the ministerial shenanigans?

Saturday, May 11, 2013

Will the PM resign?

Ashwani Kumar who misused his non-existing authority to safeguard the non-existing reputation of the prime minister has resigned. A good leader does not hold his team member accountable for an act which is done either at the leader's behest or to save the leader. But then, why assume that Singh is a good leader?

Singh will not resign unless Soniaji orders him. Soniaji will do that only if Singh's continuance is against her interest. This is not likely as of now.

What is the responsibility of the President of India at the present juncture? Is he not abdicating his constitutional duty if he does not even speak to the prime minister on multiple misdemeanours of several cabinet members? This is the time for him to prove that he is above politics and that nation's interests are uppermost in his mind.

Thursday, May 09, 2013

Ashwani Kumar's credibility

Ashwani Kumar, India's Law Minister (no less) thinks truth is a relative phenomenon and that one person's untruth may be another's truth.

Did he materially alter CBI's report (meant for submission to the Supreme Court) on coalgate? Initially he said he had only seen the report. Next came the disclosure that he had made grammatical changes. CBI in its affidavit to the Supreme Court asserted he had suggested changes which were incorporated. The Supreme Court observed that he had unauthorisedly asked the CBI to alter some parts of the report and accordingly the 'heart' of the report got modified. Honourable Kumar continues in the cabinet as if he has not done anything wrong.

Today he visited the prime minister's office. If the media had asked what he discussed with his mutual well-wisher, the response would have been like this:

1) I only went to his office. I did not meet him.

2) I met him, but did not talk to him.

3) I spoke to him, but did not discuss coalgate.

4) I spoke to him, but he could not listen to me.

5) I told him so many things, but he did not respond. (Singh's non-responsiveness goes without saying.)

After 30 minutes of intensive questioning, media would give up.

Wednesday, May 08, 2013

Underhand dealers and lotus-eaters

Karnataka has thrown up the expected results. BJP has paid the price for bungling, infighting, tolerating corruption and unjustified complacency. The Congress party has taken legitimate advantage of BJP's misadventures. It remains to be seen if Congress would have learnt a lesson from BJP's debacle and would ensure good governance.

The Supreme Court has expressed its displeasure over gross political pressures on CBI and CBI's weak knees. CBI and PMO have been castigated in no uncertain terms. Yet, "the personification of good governance" deems it fit to hang on to power and carry on as if nothing has happened. Singh's terms have been a blot on prime ministership.

Tuesday, May 07, 2013

Feline prime minister

Manmohan Singh is often caricatured as a cat. He has now actually deveoped some qualities of a cat.

When a cat closes its eyes, it thinks that the world cannot see what it is upto. Singh believes that if he turns a blind eye to his ministers' misdeeds, so would the public!

A strange report is doing the rounds that even Sonia Gandhi wants the Law and Railway ministers to resign but the prime minister is resisting. If true, this is a real twist in the tale. Does Gandhi feel that Singh has outlived his utility for her designs?

Singh of yesteryears was supposed to be one preferring death to sullied image. Has he changed? Or are we seeing his true colours only now? The judgement day is not far away. 

Wednesday, May 01, 2013

Blunders galore

Manmohan Singh time and again proves his ability to commit repetitive blunders either by himself or through his associates. He seems to have set himself  a quantitative target on the number of misdemeanours and until he achieves that he will remain as prime minister.

Ashwani Kumar may be isolated even within the rowdy cabinet, but the prime minister supports him totally. China has set up base deep within the Indian territory, but so what? Salman Khurshid calls it a localised issue. He is an expert in thinking globally and (non-)acting locally. He has discovered that the Ladakh issue is different from Kargil because we have not lost any soldier in the current episode. His message to China and Pakistan is crystal clear. "You are welcome to intrude our territory as long as you don't inflict any human casuality." Pacifism at its best! Our Foreign Minister is a candidate for Nobel Peace Prize. Ever-supportive Singh will not ask Khurshid why he is not cancelling his trip to China.

Our future ministers will be at a terrible disadvantage. They cannot commit any inappropriate act which has not been done by the present august council of ministers. In addition, they may not have such a supportive leader.