Maruti's backtrack on Gujarat plant will encourage shareholder activism in India.

Maruti's backtrack on Gujarat plant will encourage shareholder activism in India.

In the last few years, India Inc has witnessed a steady rise in the shareholder activism, wherein investors actively participate in the corporate governance activities with an aim of improving corporate performance. The latest in the list is Maruti which has decided to seek minority shareholders' approval for the controversial Gujarat plant. The rising trend has forced the people to evaluate the good and bad of the shareholder activism in India. Is this the start of new era of shareholder activism or just a passing event with time?

Yes

• It will act as base to enhance the power of minority shareholders in India where controlling shareholders, or promoters, dominate the corporate landscape.

• They can have the power to look into the details of the corporate governance. It will increase the shareholders say and will make executives more accountable.

• Small time activists and the institutional investors together can push reform resolutions to improve operations.

• It has given a start to the proxy advisory firms. One of such firms is InGovern Research Services in Bangalore which is also the India’s first independent proxy advisory firm and is run by Shriram Subramanian.

• Coal India, Akzo Nobel and Vedanta are some of the companies which have to face the questions and protests from its shareholders.

• It can have a positive impact on the share price as it happened in the case of Maruti which surged more than 7% in a single day.

No

• The corporate world gives least importance to the minority owners as a majority of the stake is hold by the promoters of company.

• In most of the cases the targets of shareholder activism are poor performers. They don’t have the courage to question the companies with significant power.

• Shareholder activism can become a capitalist tool in the class struggle.

• Shareholder activisms have to face the certain structural and institutional weaknesses embedded in the Indian markets.

• The legal system and institutions in India are not at fall favorable in providing timely and cost-effective remedies to shareholders who adopt a litigation strategy to counter the management problems acting against the shareholder’s interests.

• Instead of a tool for improving the corporate governance, there is a probability that it can become a maniac pursuit for short-term profits.

Conclusion

Shareholders activism can make a difference in the corporate governance and can force the company to answer the questions in the uncertain times. After all the objective is same and that is to boost the performance of company and maximize the returns on the investments. The factors like legislation, market liquidity, the competence within institutions, and the bargaining power of activists will play a crucial role in determining the fate of shareholders activists.