In recent weeks, we have been treated to a debate about how one defines an Indian company. The debate was sparked by a statement from the Department of Industrial Policy and Promotion (DIPP), which said that ICICI Bank and HDFC Bank are “foreign-owned and Indian-controlled banks”. This would have been humorous, if this were just academic or theoretical. Unfortunately, this definition could well impact several companies, and millions of consumers.
Based merely on shareholding, both these companies are majority owned by foreigners – and hence, not Indian. By this definition, neither is Infosys!
This is like one of those “letter of the law” versus “spirit of the law” issues. Technically, these companies may be foreign (based on ownership). However, in terms of management control as well as emotionally, these are Indian companies. And very much so!
In fact, today’s shareholding pattern is a consequence of their success! The reasons are not far to seek:
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High standards of corporate governance
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Consistent long-term out-performance
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They are board managed “institutions”, with clear separation between the board and management
The last point is probably the most significant, and drives performance and governance. Very few Indian companies have successfully made the transition from family management (and ownership) to “truly” board managed companies. Management theory and historical data suggest that such companies have the greatest chances of longevity.
In my opinion, the companies we’re talking about (ICICI Bank, HDFC and Infosys) are truly Indian corporate icons… shining examples of what Indian companies can become! If only they’d shed the ownership paranoia. Consider also that most major Tata companies have greater institutional shareholding than family.
If such companies attract FII investors in droves, is that a bad thing?
Or is it a vindication of the fact that such Indian companies have enormous investor appeal?
Should we be proud of these companies?
Or should we mire them in regulatory red-tape and theoretical formulas?
Would love to hear your views.