And we expect corporate governance...

Hummingbird (HB) came across this news item (Rush of IPOs to beat SEBI results norm, Business Line, Sep 18, 2010) that says there are 12 issues coming this month to raise Rs 4,000 cr.  The highlight of the news item is this -

A SEBI directive and a soaring secondary market have led to a flurry of initial public offerings aimed at making it before September 30.

Some Rs 4,000 crore will be raised through 12 IPOs that are being pushed through during this period. Since September 14, any given day of the month has seen at least two ongoing IPOs to date, and the rest of the month is going to be no different, at least until September 27.

"A big reason for this flood of offerings is because of the September 30 deadline set by SEBI," said Mr Sanjay Jain, Executive Director and Head of the Investment Banking Division at JM Financial Consultants. SEBI has said that if companies have issuances that hit the market after September 30, then they will have to publish their June quarter results. Those that enter the marker before that can file the DRHP with their March-end annual results.

What is interesting is that the June quarter results of many of the listed companies were below expectations, and that of yet-to-list companies are likely to be the same, said analysts. It is not a surprise then that they don't want to raise funds using their June quarter results.

The message is contained in the last sentence of the above para - companies don't want to raise funds using their June quarter results.  But why?  Because, the June quarter results of many of the listed companies were below expectations, and that of yet-to-list companies are likely to be the same, said analysts.

Corporate governance philosophy of Infosys is based on the seven principles, out of which the first two appear relevant in this situation -

1. Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should go beyond the law.
2. Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose.

HB doesn't want to comment on any individual company which is raising funds.  But HB cannot help wondering about corporate governance... these are the companies which ab initio wants to do something wrong (though they are within the boundaries of law) and we the common man expect them to behave properly and follow good corporate governance practices post listing.  Are we day dreaming?

Culture Shift: Eliminating Employee Cynicism for Good

Read this interesting article on employee cynicism. Understanding the real cause of employee cynicism is the all-important first step toward permanent eradication argues Paul Levesque in this article. Some highlights from the article -

"... There are some "constant battles" that just inevitably come with the territory. Th e fight against germs, for example, affects every aspect of life in a hospital. Those who prefer outdoor recreation will have a mosquito problem to deal with anywhere there's standing water. Similarly, employee cynicism is an existing or potential problem in virtually every business setting. But solutions do exist to keep these constants at bay. As hospitals learn how germs spread, they can more effectively prevent infection. When we understand how mosquitoes breed, we're better equipped to bring their numbers under control.

Think of five successful corporations you personally admire. Do all five provide products and services that have made—and continue to make—our society and our world better in some way? The more unequivocally you can answer "yes," the more confidently I can predict that the companies you're thinking about do not have a problem with employee cynicism. More likely, theirs are cultures characterized by high levels of employee pride, right alongside the impressive profits.

The difference is that in these cultures, prosperity is perceived to be the means, rather than the end. It's the crucial and fundamental difference between "we exist to make a lot of money" and "we exist to do a lot of good in the world, and that requires a lot of money." It's eliminating cynicism for good, so to speak.

The great paradox is that businesses driven by self-interest cultivate employees who learn to similarly put their own self-interest first—to the ultimate detriment of the business. A management obsession with profit creates a workforce disinterested in profit, and obsessed instead with working conditions, wages, and other issues of interest to the workers themselves.

Management's day-to-day actions and priorities must make it difficult, if not impossible, for even the most cynical observers to argue it's all being driven purely by self-interest. The more readily employees can point to benefits experienced by customers or by the community at large, the more the cultural scales are likely to tip toward the "employee pride" side of the balance, and away from the "cynicism" side.... "

My experience suggests that those who work, will continue to work and those who don't, really won't, whatever we do or don't do. Article appears a bit idealistic to me. May be I am wrong.

Secret Life of a Deal

Highlights from an interesting article in New York Times by ANDREW ROSS SORKIN -

"An enormous cast of characters from Wall Street worked for months — some behind the backs of their own clients — to pursue a deal. The list of big names may surprise you: Henry R. Kravis of Kohlberg Kravis Roberts, Peter A. Weinberg of Perella Weinberg (formerly of Goldman Sachs), Martin Lipton of Wachtell, Lipton, Rosen & Katz and yes, the man of the moment, James Dimon of JPMorgan Chase. As Dow Chemical tells the story — at this point, its version is the more credible — the plot started in the fall of 2006. The plan was to overthrow Dow Chemical’s chief executive, Andrew N. Liveris, and replace him with Mr. Reinhard and Mr. Kreinberg after the buyout. In the space of several months, the plotters lined up financing from the Sultanate of Oman. JPMorgan, which long considered Dow Chemical a client, seems to be in a terrible spot in this story. Perhaps the bank was duped — as it now claims. But it sure doesn’t seem that way from the now-disclosed documents. They show that the bank eagerly pursued the deal even though at least some of its top bankers knew full well that Dow Chemical’s board was not on board. JPMorgan executives met with Mr. Kreinberg and Mr. Reinhard in secret at a hotel, the Compleat Angler, 40 miles outside London. A JPMorgan e-mail message said the participants had “hired entire hotel for confidentiality.” It was only after that meeting that Mr. Winters determined that “‘management’ is not on board but rather a potentially rogue element." And still JPMorgan continued to work on the transaction, and “pitched the transaction to K.K.R. on March 13 and to TPG on March 14.” It was only once news reports about a possible deal emerged — and Dow contacted JPMorgan — that it stopped working on the deal. That is also when everything unraveled."

The Indian Context
Interestingly, Reliance Industries tried to do a Joint Venture with Dow. Both sides were believed to be discussing a possible $20-billion JV in which Reliance could take 59% stake. Dow’s basic chemicals and plastics businesses were expected to be spun off into a separate company in which Reliance which already uses Dow technology at its petrochemicals facilities was to pick up stake. The joint venture was expected to set up manufacturing and R & D facilities in low cost locations with Dow handling the customer front. It made sense for Reliance as it wanted to be able to team up with buyers who will guarantee offtake of polymers that it produces. But the PE bid for Dow was expected to ruin Reliance's plans and analysts were worried. May be that's why its said that the best-laid plans of mice and men often go awry. All in all, an uncertain world.

Oh Jerry, It’s No Longer Your Baby

Young entreprenuers get an innovative idea which also gets funded. They grow the business and at some stage the Company also goes public. In the Indian context, there may not be too many companies where promoters hold minor stakes, though Groups like Tatas have run their companies with minority stakes. If the promoter owns non-dominant stake in the company which he helped found, will he still let go of management control? Yahoo is an example in recent times. Microsoft's Yahoo bid(s) get rebuffed - reasons are given why the offer is low etc. But are they the true reasons for rejecting the offer or is it loss of identity/control over the company which Jerry helped found is the reason. What's the future of the company? Does joining hands with Google the better answer, rather than joining hands with Microsoft?

"Jerry, you’re a billionaire because people all over the world bought your stock, and trusted you to do right by them. That’s the compact you make when you take a company public: you get to be really rich, but in return, you have an obligation to do everything you can to ensure that shareholders get a healthy return on their investment. It doesn’t matter that you would like Yahoo to remain independent, or that you can’t stand Microsoft. Your feelings aren’t supposed to get in the way of your fiduciary duty," says JOE NOCERA in this open letter to Jerry Yang in New York Times.

I feel this is applicable for many Indian businesses too, where owners also double up as managers of businesses and refuse to let go management control (into competent / professional hands), both in their interest as also in the interest of all shareholders.