Sunday, June 29, 2008

Governance issue at Ranbaxy?

In today's TOI, Gurcharan Das has this to say about the sale of the promoters' equity in Ranbaxy to Daiichi of Japan:
For some years now I have been on the board of Ranbaxy and have watched with admiration as the company transformed itself into India's first real multinational. I have seen it inspire a dozen other companies and helped create a world-class generic drugs industry that is feared by western giants for aggressively challenging their patents and admired for lowering the cost of medicines around the world. How, then, was I to respond to the announcement by Ranbaxy's CEO, Malvinder Singh, that he wanted to sell his family's stake for Rs 10,000 crore to a Japanese company, Daiichi Sankyo? The family was equally shocked. A CEO's ability to keep months of negotiations secret in a country afflicted by verbal diarrhoea speaks of the company's character.

Das' comments suggest that, as a board member, he had little inkling of the deal until it was announced in public. Are we to conclude, then, that the deal was not approved by the board? If yes, is this appropriate?

This is not a case of any investor selling off his stake. The dominant investor is also top management. The decision of the promoter to sell his stake thus implies a decision by top management to let another company acquire Ranbaxy. Can such a decision be taken without the concurrence of the board? It does look as though there is something here for Ranbaxy's shareholders as well as Sebi to ponder.

15 comments:

Raj said...

You have made an excellent point, Ram. But, in Indian companies, when the dominant investor is the top management,. Board meetings are a mere formality to be solemnly observed once in two months. Most decisions are taken between meetings and independent directors sounded out, if at all. I would love to hear of a single instance of an independent director raising serious objections in a Board meeting of a family-dominant organization. Even the AGMs are ‘managed events”.

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