IIMC meet highlights merger pangs

In order to increase shareholders' wealth and add value to business, any Indian company in an international joint venture (IJV) should weigh the regulations of the local government on issues like interest rates, devaluation, import restrictions and taxation structure.

At a seminar on 'governance of international joint ventures' organised in the city by Indian Institute of Management Calcutta (IIMC), Dilip K Sen, vice-president and company secretary of Tata Tea, said, "Issues which cannot be decided by the chief operating officer must be brought up to the board especially during important policy matters such as budget and long-term business plans."

According to Ashish K Bhattacharyya, professor of finance, IIM Calcutta, "Since corporate governance addresses the agency problems, it can stipulate mechanisms that reduce agency costs. The focus should be on monitoring and control of the manager, who enjoys the power to control the resources of the firm."

"In the context of an IJV, the state should play an important role in corporate governance to provide proper legal environment and create institutions, which significantly can influence ex-post bargaining powers of contracting parties. Ex-post bargaining powers determine the sharing of quasi rent between contracting parties."

Sen added, "Although disputed, independent directors on the board of an IJV can ensure objectivity detached from operational management. Presence of independent directors help maintain checks and balances in the corporation. The expertise brought by the independent directors into the organisation is often invaluable, as the same may not be internally available."

An IJV is a separate legal entity distinct from the joint venture partners. Two or more parties may join hands to set up a new entity which would undertake some business activities in which the JV partners are interested.

If at least one of the JV partners is based outside the country of incorporation of the JV company or if the JV company has significant level of operations in more than one country, then such JVs are considered an international joint venture.