Satyam was not the first case of its kind in India, but it was THE high-profile burst that destroyed investor confidence. It was outright fraudulent, as admitted by its own founder. (Which SEBI corroborated quite recently, despite Ramalinga Raju's written confession years ago. Nicely done, SEBI!)
Compared to outright fraud, corporate governance practices may seem a bit grey, if you add a dose of business jargon. What's worrying is the fact that it is becoming way too frequent. Cairn India did it recently when it announced that it was transferring $1.25 billion to a subsidiary. The audacity was shocking - they had already disbursed around 2/3rds of the sum before making the news public. Now, you would wonder why? This is a publicly traded corporation. In other words, baap ka paisa nahin hain - the shareholders have a right to that cash. The management excuse: The interest rate from the loan to the affiliate is more than what it receives from its fixed deposits in the US currency. We do not invest in companies so that they can park their surplus funds in FDs and crib, do we? Reinvest for better returns or pay out dividends, duh. Not hand it over to related parties.
Well, that was somewhat tolerable if I was Christ. What took the wind out of me was another article that I read today. For simplicity sake, assume that I started a company in 1982 and listed it later. I had named it XYZ Steel.
Fast forward to 2014. It is a $10 billion plus conglomerate now. I announce that the brand name "XYZ" belongs to another private company named XYZ Investments Private Limited incorporated in 2005 (31/03/2005). Incidentally, my wife holds 99.99% of equity in XYZ Investments. In the interest of brand promotion, I plan to transfer funds from XYZ Steel and other group companies to my wife's company, for using the XYZ brand name. This year's payout to my wife from XYZ Steel: 125 crore Rupees.
Funny, right? That's what JSW Steel, a publicly traded corporation, is doing.
But I wondered how the management would explain this to people who own their stock. Beats me. Well, this is how JSW Steel responded to a query from Business Standard. Full report here. "To ensure consistency in brand usage, uniformity in performance standards among various companies using the brand, appropriate framework has to be in place through governance structure, code of conduct and a business-excellence model. The brand owner has to be vigilant and needs to monitor that the brand name is not misused and the value of the brand is not diluted. Accordingly, JSW Investment Ltd, the brand owner since inception, has carried out a study to adopt best practices in managing the brand architecture, benchmarking with both Indian and international conglomerates. To sustain and improve the brand value and to bestow the tangible and intangible benefits in the longer term, a sustainable corporate-branding campaign involving substantial expenditure has to be done on a consistent basis - to disseminate the idea, knowledge, information and core values of the brand through a systematic campaign."
What the hell was that again? I don't know. I'm not that smart. But I have one ability - to smell bear-shit. And this one is. Stay away from JSW, folks. And if you own it, sell it, unless you want to hand over your rights to the promoter's wife.
Btw, the markets are funny, coz the stock did not plummet today as I expected. That said, poor corporate governance does not pay in the long run. Satyam!
Compared to outright fraud, corporate governance practices may seem a bit grey, if you add a dose of business jargon. What's worrying is the fact that it is becoming way too frequent. Cairn India did it recently when it announced that it was transferring $1.25 billion to a subsidiary. The audacity was shocking - they had already disbursed around 2/3rds of the sum before making the news public. Now, you would wonder why? This is a publicly traded corporation. In other words, baap ka paisa nahin hain - the shareholders have a right to that cash. The management excuse: The interest rate from the loan to the affiliate is more than what it receives from its fixed deposits in the US currency. We do not invest in companies so that they can park their surplus funds in FDs and crib, do we? Reinvest for better returns or pay out dividends, duh. Not hand it over to related parties.
Well, that was somewhat tolerable if I was Christ. What took the wind out of me was another article that I read today. For simplicity sake, assume that I started a company in 1982 and listed it later. I had named it XYZ Steel.
Fast forward to 2014. It is a $10 billion plus conglomerate now. I announce that the brand name "XYZ" belongs to another private company named XYZ Investments Private Limited incorporated in 2005 (31/03/2005). Incidentally, my wife holds 99.99% of equity in XYZ Investments. In the interest of brand promotion, I plan to transfer funds from XYZ Steel and other group companies to my wife's company, for using the XYZ brand name. This year's payout to my wife from XYZ Steel: 125 crore Rupees.
Funny, right? That's what JSW Steel, a publicly traded corporation, is doing.
But I wondered how the management would explain this to people who own their stock. Beats me. Well, this is how JSW Steel responded to a query from Business Standard. Full report here. "To ensure consistency in brand usage, uniformity in performance standards among various companies using the brand, appropriate framework has to be in place through governance structure, code of conduct and a business-excellence model. The brand owner has to be vigilant and needs to monitor that the brand name is not misused and the value of the brand is not diluted. Accordingly, JSW Investment Ltd, the brand owner since inception, has carried out a study to adopt best practices in managing the brand architecture, benchmarking with both Indian and international conglomerates. To sustain and improve the brand value and to bestow the tangible and intangible benefits in the longer term, a sustainable corporate-branding campaign involving substantial expenditure has to be done on a consistent basis - to disseminate the idea, knowledge, information and core values of the brand through a systematic campaign."
Btw, the markets are funny, coz the stock did not plummet today as I expected. That said, poor corporate governance does not pay in the long run. Satyam!
