Provided they have all the details, shareholders are best placed to do this.
As presidents and prime ministers discuss top corporate packages in London, New York and Pittsburgh, I am reminded of a hallowed British Indian firm (now, alas! gone up in smoke) whose Number One, Number Two and Number Three were referred to in reverse order as Three, Two and One. That was because the Big Three’s monthly emoluments were Rs 3,00,000 , Rs 2,00,000 and Rs 1,00,000. Those were fabulous sums in the ’50s.
Going by company reports, top emoluments have soared much above those figures. Share-holders, who are supposed in theory to keep a sharp eye open for unproductive use of corporate funds, have been reduced even more to the level of dumb sacrificial goats. So, though Salman Khurshid’s promise that the government will no longer have to approve CEO’s emoluments under the new Companies Bill on the anvil is a welcome acknowledgement of the magic of the marketplace, I cannot but wonder if his generosity isn’t misplaced. The devil looks after it’s own, as they say.
I am sure British resourcefulness and Indian ingenuity combined to ensure that burra sahibs didn’t suffer when the earlier Companies Act clamped a Rs 7,500 ceiling (plus 50 per cent commission) on the boss. Or, later, when the collective earnings of all directors could not amount to more than 11 per cent of profit, no single board member being entitled to more than 5 per cent. Profit, as we know, is a moveable feast. A friend who lived in great style because his family owned a chunk of shares in a plantation company told me in all seriousness they couldn’t afford to show a profit.
Internationally, we are regaled with the spectacle of CEOs flying into Washington in private jets to demand a federal bail-out. The late Emil Savundra set the trend. He was an extraordinarily able Jaffna Tamil who donned an expensive fur coat to be chauffeured in his Rolls from his Hampstead mansion to a labour exchange where he signed the unemployed register. Having milched a British insurance company of millions of pounds, Savundra had to comply with that formality before declaring bankruptcy.
The corporate affairs minister must know that salary ceilings are as meaningful as the ceiling on a political candidate’s election spending. There’s always a way round. Some managing directors became presidents to escape the former’s financial constraints. Some ordered all meals from clubs and restaurants that billed the company, some passed off the family’s entire wardrobe as furnishing for office accommodation. Private use of cars, petrol and driver is easily camouflaged. The complaint in official circles is that batmen and peons are put to domestic use. The private sector reversed roles so that domestic servants became company employees, often as maintenance staff for company accommodation.
Shareholders are supposed to check such abuses. That delightful film, The Solid Gold Cadillac, showed how the conniving bosses thought they had silenced Laura Partridge, the 10-share stockholder prone to asking awkward questions, by giving her a sinecure. Instead, Laura used her office, time and facilities to cultivate other small shareholders by taking a sympathetic interest in their aches and pains, pets and families. She ended up with mounds of proxy votes which she used to create havoc at the AGM and wrest control from the corrupt management.
Discussing an Indian CEO who used the company’s official guest house as his exclusive love nest — accessible only to him and his mistress — the Income Tax authorities said it was for the shareholders to take up the misuse. But shareholders were not even aware of the bungalow’s existence though it was company property! In any case, they were mostly dummies denied access to audited reports and never allowed within miles of an AGM.
Swraj Paul, who badly burnt his fingers trying to invest in two premier Indian companies, DCM and Escorts, had much to say on this topic in a talk titled “Corporate Crooks?” Speaking of managers, he mentioned “the vast range of their perquisites, benefits and other questionable takings”. He listed “houses, cars, jewellery, weddings, receptions and gifts, furniture, videos, trips abroad and much more … all paid for by shareholders.” Public companies, financed with public funds, were “treated like private and personal property”.
Lawyers and management consultants who welcomed Khurshid’s announcement still feel the need for some checks and balances to prevent exploitation. Their concern is understandable. Shareholders would provide the most effective corrective if some way can be found of saving the mechanism from being silenced or suborned.
