tag:blogger.com,1999:blog-3202774368551476669.post8187300897550052159..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: Should Shareholders Pay for Corporate Misconduct?Umakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-3202774368551476669.post-32787400633379649072010-08-08T13:14:02.807+05:302010-08-08T13:14:02.807+05:30I’ll go a little further..
Shareholders must pay ...I’ll go a little further..<br /><br />Shareholders must pay for the mangers’ misconduct; do they not feel entitled to benefit from the managers’ brilliant performance? If they do not have stomach for it they should move into bonds. <br /><br /> And yes, investors seek to minimize the firm specific risks (such as a drunk trader trading away the firm’s net worth) by diversification. <br /><br />But what really beats me is Mark Hurd getting away with a severance package of US$ 50 million. There is a nexus / old boys’ network, call it whatever you wish, that is determined to protect teh managers vis-a-vis the shareholders.Sacha Singhhttps://www.blogger.com/profile/11969767510351797046noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-14646602286117461612010-08-05T20:05:16.726+05:302010-08-05T20:05:16.726+05:30On the first take, it does appear that shareholder...On the first take, it does appear that shareholders get a raw deal when the settlement monies flow from corporate coffers than the misfeasing managers. On a closer look, sorkin's claim about it being unfair for shareholders, seems an overstatement.<br /><br />This is firstly because, Even though the Corporation is made to pay the fine, limited liability and portfolio diversification mean that the per capita loss to shareholders is miniscule. In fact, outside shareholders deem monitoring of corporate affairs costly and choose diversification as an alternative. <br /><br />Secondly, the corporate that pays the fine may clawback the monies expended from the corporate managers on the grounds of misfeasence-- instances where duty of care violation is argued, might admittedly be difficult in the light of the business judgment rule; nonetheless, the counter-force of hindsight bias that affects ex post decision maker may help the plaintiffs pleading for clawback. Arguments for clawback are stronger for claims about violation of duty of loyalty in any event.<br /><br />So, in a nutshell, Sorkin's compliant appears very naive.<br /><br />Similar arguments could be made about the indian scenario too- in fact, in the indian context where controlling shareholder is dominant and holds concentrated interest, such fines may hit it where it hurts most and actually serve the purpose of deterrence. The outside shareholders are dispersed and therefore per capita losses for them 'd be lower than what Sorkin 'd have us believe. <br /><br />So far as forced delisting is concerned, the other side of the coin I think is equally arguable-- If the delisting happens at a fair price allowing the outside shareholders to exit at fair price plus a premium, that might be a far better deal than the incremental agency costs they might otherwise incur by staying invested in a corporate that routinely flouts corporate governance norms.Mandar Kagadenoreply@blogger.com