I came across this essay titled “Democracy in Corporate America” by John Bogle while blog hopping. In this essay, Bogle puts across the following points:

1. Shareholder interests are rarely served by companies these days.
2. Boards are not independent but loyal to managers.
3. Managers have become all-powerful and are misusing their power by fudging earnings and rewarding themselves disproportionately large bonuses.
4. Managerial thinking is more short-term.
5. States and the federal goverment have not come out with rules to help this situation.

And this is the state in one of the most developed countries in the world !!

This got me thinking about the situation in India, especially about the big soap opera that the Reliance split was. For the uninitiated, Reliance industries is a Fortune 500 company and is also India’s largest private sector company. It was started by Dhirubhai Ambani and his two sons, Mukesh and Anil, inherited it. Sibling rivalry led to the split of the company into two in 2005 and this deal was brokered by their mother, Kokilaben.

And the best thing about this – everyone, and I mean EVERYONE, went along with this. There was no noise from shareholders about this issue. The split ended up giving all energy related businesses to Mukesh and financial/telecom businesses to Anil.

The problem: Mukesh was the telecom visionary but his long term strategies were now lost to that business.

Since this was a huge conglomerate and had been split into two, there was a major unlocking of value and the stock price shot up for both companies. That made the average stock holder who preferred short term gains over long term strength happy. And it sickened long term investors like me who now have to study two separate companies while making investment decisions

I have now realized that making companies accountable is a problem everywhere in the world and it also tough to get governments to help out with this issue. Being a shareholder in both India and USA, hopefully I can help educate investors in both countries about this problem.