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India's Shaky GovernanceBy ugesh sarkar, Section GN
It's easy to ignore corporate governance hounds when the going is good.
Consider India. Foreign buyers are pushing stock prices toward all-time highs, drawing a new wave of Indian companies to the public markets. Some 50 applications for new listings on India's stock markets worth about $6.3 billion are pending, says Firstcall India Equity Advisors.
A year after the Satyam scandal erupted, investor protections remain weak, a recent study by the Asian Corporate Governance Association, or ACGA, concluded. In particular this creates problems for minority investors in the family-owned businesses that are so common in India. For example, controlling shareholders can strike deals even when conflicts of interest are readily apparent. By comparison, in Hong Kong and Singapore, companies making sizable deals of this nature need the approval of independent investors. Another complaint? The practice of allowing the controlling family to buy stock at below-market prices through the use of preferential warrants. Ostensibly to raise funds, the move nevertheless erodes minority ownership. Write to Harsh Joshi at harsh.joshi@dowjones.com Source: The Wall Street Journal By Harsh Joshi India's Shaky Governance Click On "Full Story" For More...
Drowning them out further is the fact that minority investors have to be physically present to vote at shareholder meetings, meaning proxies can neither speak at meetings nor participate in the most common show-of-hands votes.
Company boards, meanwhile, can be conflict-riddled. New York-based Governance Metrics International assigns a "below average" score to real-estate firm DLF because three of the company's 12 directors are members of the controlling Singh family, and an executive sits on the audit committee. DLF, in response, says it meets legal requirements. DLF isn't alone in facing this criticism. India's real-estate companies are often picked on by governance advocates who raise problems with everything from lack of disclosure on land payments to the way revenue is recorded. Real-estate stocks dropped 21% in the two-week selloff that followed news of fraud at Satyam. Few companies seem interested in adopting more transparent practices, ACGA says, and investors who run into governance problems have few avenues for meaningful complaint. In fact, "if a minority shareholder doesn't like the way a business is being run, at best he can exit profitably," says Deval Patel, a Mumbai based lawyer who advises foreign investors. For Asia's most expensive stock market, that's hardly good enough.
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Flash back a year and markets were reeling from a massive fraud at Satyam Computer Services as investors reevaluated India on the basis of governance risk. Does the market's return mean India has its governance problems sorted out? Hardly. 
