Effect of elephants on markets

Today while in the marketing class, Prof. P.K. Yadav gave us a situation to work with wherein he took names of four animals and asked us to come out with companies related to the characteristics of animals. One notable name which he took was that of elephant. Elephant is a mammoth mammal which is herbivorous and nobody preys upon it (except when its a calf, some lions might get lucky).This is an animal which feeds upon the natural vegetation merrily without any damn and consequences and isn't part of the food chain later i.e. doesn't become a food for carnivores. It gulps down a huge amount of vegetation and when it gets mad, it causes destruction too. A herd of elephants in an area can be a headache for the local ecology.

It reminded me of companies like Kingfisher Airlines, Suzlon, DLF, Unitech, Educomp Solutions etc. which kept on feeding on the easily available credit of our economic system without any due consideration given to the state of their Balance-Sheets and the damage they were causing to the economic ecology or at least the banking system of our country. Their managements acted like alpha-males taking on unnecessary huge risks and expansions funded by credit as if they were some piece of cake. These companies are still on the horizon mainly because they can't be allowed to falter and that's why there is frequent injection of money supply to let the banking system function to normal pace, but because of which the common man has to suffer the pain or pinch of inflation. And the shareholders have to face the loss of value.

Issues with The Companies Bill, 2012

The main issues still lingering with the Companies Bill, 2012 are:

1. The concept of independent directors is being brought for the first time in the Companies Bill, 2012. 1/3rd of the board will comprise of independent directors. Do we really think promoters will allow "true independent directors" on board?
2. Are there enough "true independent directors" available in the market?
3. Independent directors are allowed 20 directorships at a time of different companies. How can one really contribute in a significant manner protecting shareholders' interests if one serves on 20 different boards simultaneously? Can he or she get that quality time?
4. 2% on profits has been mandated to be spent upon Corporate Social Responsibilities (CSR). But the term "CSR" hasn't been concretely defined. Nobody knows where the money will be directed towards. Whether it'll go to an NGO surreptitiously involved in black money laundering or towards a genuine NGO involved in underprivileged child education, its highly unpredictable. Also, will it be used for building useless temples on government granted lands for pompous religious purposes or their concern will be genuine social upliftment? Things are still to be clear on that front.
5. Class action suits have been enabled in the new Companies Bill, 2012. This'll help protect shareholders' interests and prevent Satyam-like fiascos. Now the hard question is whether the shareholders of government owned companies can sue the government. In 2012, Coal India was directed by government to provide coal at lower prices and pained by this, one of the shareholders', The Children Investment Fund, took Coal India to courts. No such light has been shed on this.
6. There is a provision for at least 1 woman independent director out of 5 independent directors on a board of the company. While the move is directed towards gender equality, there is a huge scarcity for quality women in leadership roles in businesses. Rather than dictating terms on this issue here, the government should focus upon women empowerment and their upliftment. Reservation of any sort in business sphere is going to be counter-productive.
7. A huge responsibility and liability has been attached to the position of the directors of the company. The Board of the Company now straightaway means a collective body of directors of the company. Director's Identification Number (DIN) has been made mandatory by the Central Government for directorship or else he can't be a director in any company. In times like today, where privacy is getting more and more prized and dificult to maintain, getting on the government watch-list can be a serious dissuader for quality directors, especially independent ones who might not like to be pried upon.