The recent turmoil within the boardroom and family of Raymond has seen minority shareholders take a hit, and experts warn that there is little they can do to protect their investments.
According to experts, minority shareholders, who hold less than 50% of the stock, are the most affected by feuds between board and family members. In the case of ongoing disputes such as pharma company Hikal and Finolex Cables, experts say that shareholders have limited options – offloading stock as it’s falling or holding it for an indefinite period.
Deepak Jasani, head of retail research at HDFC Securities, emphasizes the importance of assessing the company’s performance and the potential length of the dispute before making a decision.
Delhi-based corporate lawyer Anuroop Omkar, founding partner of law firm AK & Partners, highlights the difficult position of minority shareholders in such disputes. He explains that even the provision in the Company Act 2013 called ‘Oppression and mismanagement in a company’ might not be effective in personal battles like the Raymond case.
The impact of such disputes on shareholder value is exemplified through a list of historical corporate battles involving high-profile companies and their impact on shareholders. The tables show disputes between Mukesh Ambani & Anil Ambani, Narayana Murthy & Vishal Sikka, Sunandha Hiremath and Baba Kalyani, and Prakash and Deepak Chhabria.
When it comes to shareholder recourse, Shriram Subramanian, founder & MD of proxy advisory firm InGovern, highlights that minority shareholders will have to depend on the Board and independent directors to act on their behalf in case of investigations.
Institutional advisory firm IiAS also advocates for an independent investigation, asking the board to send promoters on leave until the investigation is complete. However, experts reinforce that legal recourse can be a double-edged sword for minority shareholders, potentially causing a major share price drop and working against their long-term interests.
In conclusion, shareholders are advised to carefully assess the corporate governance track record of companies engaged in internal battles and make an informed decision about whether to hold on or sell out.
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