Is it fair for DCB to extend ESOP exercise period due to strategic change?

A niche private sector bank DCB(Development Credit Bank) was named by Motilal Oswal in its annual wealth creation study as a potential 100x bagger, subject to management validation :D

In Oct-15, they announced an ambitious plan(http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/22B0BC71_2E4B_42AF_8CE5_3CABA08280AE_171649.pdf)  to double their branch network in 12months. They had even stated upfront that this investment would pay back only in 3-4 years. Unsurprisingly, despite their detailed planning, the stock market punished them by hammering down the stock by ~50%. Then the management rolled back the plan and said they would consult the analysts going forward  http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/6577829A_1250_4D5C_AE43_DF6253C10D48_080642.pdf

Things settled down and the stock has nearly returned to its earlier levels. However, while reading the annual report, I came across this nugget indicating repricing of stock options 

http://www.bseindia.com/bseplus/AnnualReport/532772/5327720316.pdf

During the year under review, the Bank has extended the exercise period from 5 years to 8 years from the date of vesting for all the unexercised options in force, as on July 1, 2015

I could not locate any specific shareholder approval for this measure, and it appears this was done to protect employees from their underwater stock options(remember the shares as at Mar 31,2016 was trading at ~Rs 70/share vs earlier levels of 140). This is quite sad that the 3yr extension was given without revising the exercise price upwards. Where is the skin in the game for the management to feel the pain like equity shareholders? Ironically, this extension happened even when the stock price was way above the weighted average exercise price of Rs 47(as at 31 Mar 2015), and hence most options would not have lapsed. 

Dr Vijay Malik has explained the volte face of the management very beautifully in his blog post
http://www.drvijaymalik.com/2016/05/steps-to-assess-management-quality-before-buying-stocks-moneylife-session-part-3.html

Key takeaways from Reliance Industries Annual Report for 2015-16

It is not everyone's favourite pastime to open a 400+pg annual report, but I could not resist the urge to read the RIL annual report once it was released. Here goes my takeaways(in no particular order). Those interested can download it from http://www.ril.com/getattachment/56a9a0bd-d1e1-4735-9e8f-ece1e7e71e87/AnnualReport_2015-16.aspx

• As versus prescribed CSR spend of ~56 crores, they have spent ~67 crores. Interestingly, nearly 90% of this is via Reliance Foundation and not directly.
• They have a CFO and a Joint CFO, who earn Rs 14crs and 11crs respectively. The division of work between them is not too clear
• Pg 13 and Pg 53 highlight Reliance's products in everyday life, and the product cycle chemistry. This is a must read for everyone
• Mukesh Ambani has accepted remuneration of ~40% of his approved limit, in an effort to set a personal example for moderation in managerial remuneration. 
• Jio's strategy seems similar to Wechat, in my view, considering the wish to integrate payments, communication and ecommerce. Would be interesting if they succeed.
• On reading the ambitious plan for Jio which would account for ~20% of group capital employed, I decided to hunt for reviews of the pilot launch. This link(http://techpp.com/2016/05/26/reliance-jio-apps/) is not very complimentary of the user interface, and therefore apps like Magzter, Netflix could rest easy for some time
• Under Prabir Jha, Reliance had switched to employee friendly initiatives like a 5 day week, RALP etc. But now, there is hardly any mention of HR in the report. While Reliance has a good employee brand (maybe not among IIM graduates but overall), the report could have focused more on building this
• The company is VERY science  and technology focused  as evident from the space devoted to the discussion. 
• Reliance achieved a 7yr high GRM/barrel of $10.8, which it attributes to  The ability to operate at high utilisation levels and switch product slate to suit market conditions enabled RIL to capture margin optimisation opportunities in the market.
• Under an innovation program GenNexHub, the company encourages startup via incubatio as follows: During the four-month-long programme, GenNext Hub conducts workshops and mentoring sessions for start-ups in the areas of customer development, market traction, operations, product roadmap, fund raising and pitching. It also provides expertise in IP, legal, financial compliance, HR and specific sectorial expertise. GenNext Hub is uniquely positioned as a global programme that helps start-ups think big and grow fast. This seems inspired by Rocket Internet, since the areas are not too relevant to Reliance. 
• The financials were not too insightful but that is only to be expected from a company audited by the Big4. 

Why are shareholders voting against dividends at AGMs?

Recently, I noticed an interesting trend in two AGMs of Sep 2013. In the AGM of  listed jewellery retail firm Shree Ganesh held on 6th Sep 2013, 99.61% of the votes(52823544 shares) were cast against the Board of Directors proposed final dividend of 10%. Promoters own 73.46% of 7,19,06,485 shares so they seem to have voted en-bloc against the dividend, and since no one else attended, that become a 100% vote against the dividend. Maybe this was an unwritten clause in the preferential allotment done earlier that month.

In the case of Gitanjali Gems AGM held on 30 Sep 2013 http://www.bseindia.com/xml-data/corpfiling/AttachHis/Gitanjali_Gems_Ltd_011013.pdf 100% promoter votes and 99,75% 'public shareholder' votes were cast against dividend declaration, while 100% institutional shareholders voted for dividends, but ended up on the losing side. A very interesting case of maybe financial distress or trying to push the share price down.

In the previous year, infrastructure firm Atlanta Ltd saw shareholders voting against its 10% dividend(20 paise per share) but there were no other examples I noticed. 

While Indian company law permits shareholders to reduce/avoid declaration of dividend proposed by the Board, this is the FIRST time I've seen two instances of companies doing so, both financially stressed firms in the jewellery sector. But then, this was a month of several firsts with the withdrawal of audit reports in FirstLeasing, MCX etc.

Gammon 'non executive' director Pervez Umrigar remuneration-will this set a trend in India Inc?

While reading the Gammon annual general meeting(AGM) notice(http://www.gammonindia.com/investors/pdfs/GILnotice-91st-agm.pdf), I noticed an interesting point as described in Item 6-
Mr. Parvez Umrigar, a Chartered Accountant and a Cost Accountant, has been associated with Gammon group and has over two decades of industry experience. Mr. Umrigar was appointed as a Whole-time Director designated as Group Director on the Company’s Board effective from 2nd January, 2013. Effective 1st April, 2013 he ceased to be a Whole-time Director. He however, continues to be on the Company’s Board as a Non-Executive Non-Independent Director(emphasis added)

Item 7 laid out the rationale for the payment as follows-
Mr. Parvez Umrigar with his rich infrastructure industry experience and expertise in the areas of finance and strategic planning continues to guide the Board and the Company’s management on various financial and strategic issues. The Board of Directors (the “Board”) is of the opinion that Mr. Umrigar should be remunerated for the valuable services being rendered by him(emphasis added).

These bring out very interesting points

1. Since he resigned within 3 months of assuming the executive director post(yet retained his board seat), maybe this was for better prospects since he joined Piramal.  So he did not have the inclination to devote full time attention but is more than willing for part time remuneration, while being involved elsewhere
2. Guidance on financial/strategic issues(and being paid for that) stretches the boundaries of being a 'non executive' director. Granted that under company law, directors are anyways supposed to do that so remunerate under sitting fees/commissions-why have a specific fixed fee contract for that? Other companies like Dabur award a performance bonus basis objective assessment of the directors contribution at year end, this is an ex-ante process

Now, he's not related to the promoters/management and given his track record, there is not a whisper of impropriety. Still, this sort of arrangement does raise eyebrows, about someone relinquishing a full time position, yet earning a consulting assignment as an non executive director. Yet, with its P/B<0 .1="" albeit="" all="" and="" at="" be="" being="" cannot="" cdr="" circumstance="" company="" contract="" counsel="" culture="" div="" earlier="" else="" ethics="" even="" expert="" financial="" fit="" for="" from="" gammon="" have="" he="" interesting="" issues="" it="" its="" just="" links="" makes="" money.="" nbsp="" of="" part="" price="" probably="" requires="" resignation="" severed="" that="" the="" time="" under="" value="" which="" would="">

TCIs lawsuit against Coal India-legally and morally flawed

I wrote a post on this at my other blog, do take a look(http://apoliticallyincorrect.blogspot.com/2012/05/tci-sues-coal-india-morally-and-legally.html). While I rarely toe the Government line, this issue seemed too unfairly portrayed in the mainstream media to pass up!

If REC ignores audit recomendations, then why have the audit?

REC is a well known equity and debt issuer, with an IPO/FPO and many successful bond issues under its belt. It even has Navratna status, and is an important partner in the Indian Government's efforts for rural electrification. But when it comes to listening to its auditors and solving their audit queries, it has a long way to go. From the Feb12 bond prospectus(http://www.sebi.gov.in/cms/sebi_data/attachdocs/1330060059753.pdf), I noticed that many points were repeating in the audit objections in Appendix I F-1 to F-4 after Pg 302, which are tabulated below in brief.

You would notice that the major violations relate to utilization of government grants, monitoring of loans given to SEBs/discoms, and an elementary thing like obtaining search reports. And despite power projects getting 'restructured' routinely, it had not occured to the management to ensure that they ascertain the viability of the revised project before according their routine sanction to the restructured loans.

And mind you, this was not the C&AG audit which is anyway expected to be critical. It was the statutory financial audit, for which the points were raised but not acted upon(hence they repeat for each year). It is not my intent to criticize the auditors-after all change takes time in government organizations, and they did play their part by qualifying the report.  Note that the financial auditor has only the audit report to apply 'moral suasion' on the company to make the change. But for some points to be unresolved for the past 4-6yrs as seen in this table, is a bit incredible. To their credit, REC did solve a few audit objections by FY11(hence they drop off) but the pace is just too slow. It is hoped that listing and the frequent bond issues will make REC more respectful of the auditor's recommendations.

Essar redefines factoring/assignee to save promoter entities from guarantee

It is not often that I cross-post items across blogs. But having spent 2-3hrs to piece the Essar puzzle together, I thought that the final analysis on the 27% yielding Essar bonds maturing 2016, deserved a wider audience. A rather longish post, but well worth the read(http://specialsituationsindia.blogspot.com/2012/01/27-yield-essar-energy-425-2016.html). For those of you impatient to get to the factoring bit, just fast forward towards the end. For best results, read the other post on Essar, under the same tag.

Will the RBI guidelines on bank staff compensation lead to spur in FRM demand?

In Jan-2012, the RBI(India's banking regulator) announced the Indian version of the Financial Stability Board(FSB) guidelines of 2009, which set principles for banking compensation that aims to align risk with return, ensure independent director oversight etc. The principles can be read here(http://rbi.org.in/scripts/NotificationUser.aspx?Id=6938&Mode=0) and are effective from the Mar12 fiscal onwards.

While the principles come as no surprise for risk taking staff(clawback/deferral etc), what is interesting is the recomendation for higher base pay for control function staff, as can be read below.

2.2 Guideline 4: For risk control and compliance staff

2.2.1 Members of staff engaged in financial and risk control should be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the bank. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial and risk management’s influence on incentive compensation. Back office and risk control employees play a key role in ensuring the integrity of risk measures. If their own compensation is importantly affected by short-term measures, their independence will be compromised. If their compensation is too low, the quality of such employees may be insufficient to their tasks and their authority may be undermined. The mix of fixed and variable compensation for control function personnel should be weighted in favour of fixed compensation.

2.2.2 Subject to the above, in devising compensation structure, banks may adopt principles similar to principles enunciated for WTD/CEO, as appropriate.

The above principles would imply a high base pay, skewed towards fixed amount. The last time the compensation of employees was delinked from their business unit performance(as happened for equity research analysts whose bonus was delinked from investment banking revenues), that did not reduce the pay much as banks still set bonus in a black box type approach, which DOES consider investment banking revenues as well. But because RBI has plugged the loophole of high bonuses in its guidelines, it should ensure a good fixed pay. 

Qualifications like FRM are not as popular(yet) as CFA in India, because the risk function is still not as respected/well paid. But with such remuneration norms coming in place with the elevation of the rusk function, this should change. One of the reasons Goldman Sachs has been relatively unscarred by any crisis, is the competence and organizational profile of its famed control function. The sooner other banks realize this, the better it is for the industry and for risk management professionals.

Mr Sunil Behari Mathur earned Rs 1.27 million for attending 1 meetingof HDIL

While reading the latest annual report of HDIL(http://www.hdil.in/pdf/annual_report_2010-11.pdf), it struck me that Mr SB Mathur(ex Chairman of LIC), now on 12+ boards, had attended only 1 out of 5 meetings held in FY2010-11. While he got sitting fees @ Rs 20,000 just for one meeting, he earned the same commission(Rs 12.5 lakhs) as the other directors did.  And to top it all, he had not attended the previous AGM. He is thus a poster child for a serial independent director, less interested in the company than in fees.

Now, one can argue that AGMs are anyway a waste of time as are board meetings where management decisions are just rubber stamped. If that is the case, he is an extremely expensive rubber stamp earning Rs 1.27 million for attending just 1 meeting. And lest you think this is an exception, he had attended just 3 of 5 meetings in FY2009-10, acceptable but not stellar by any stretch of imagination. Given that he's on the board of a realty company considered to be in a murky sector, one would have thought he will pay extra care to that company as opposed to other financial services companies etc. But no, he got away with attending just 1 meeting, and was reappointed as well. So what can investors do about it?

1. Shame:-For starters, bring a resolution seeking that for the above reasons, the director should not be reappointed. I agree that illness etc may have prevailed, but that attendance record should have certainly been explained to the shareholders, which was not done. 
2. Voting:-Casting a negative vote, especially by institutions would have sent a strong message. 
3. Keep track:-Read the annual report and keep and eye for such things.

Now, I have nothing against Mr Mathur and admire the work he has done while in LIC. But such conduct as an independent director of a listed company, does not befit his reputation. If I'd invested earlier in HDIL, I would have brought a shareholders resolution before the AGM itself. But I guess that would need to wait till next year now. If any reader thinks I'm being too harsh, then feel free to comment civilly below,.

When it pays to disclose-examples from investing and valuation

Some examples are given below from business and beyond.

• The more prior art is cited in patents, the more valuable they become. That is because the patent itself works around the existing pathways instead of using them. Therefore, it is not only novel but often preempts expensive infringement suits. 
• The more broad the claims, the less difficult is it to bypass patents. That is why patent offices globally are very careful to avoid granting(or revoke if already granted) broad patents-as the infamous example of the infringement suit which Henry Ford had won. 
• In M&A deals, the agreement often states that material adverse change shall not include any risk factors already outlined in the publicly available financial filings(eg 10-K risk factors). 
• Narayan Murthy of Infosys recalls that when Infosys lost money in share market speculation during its initial years, it came clean to the investors and promised not to be so careless next time onwards. Investors readily forgave them, because of them being upfront. 
• During public offerings, if the regulator deems that disclosures in prospectus are insufficient, then the issuer/promoters are liable to suits from investors who want compensation for post issue share price crashes
• A standard analyst tool is to check for the quality and quantity of disclosures, to cut the financial risk from investor angle. So companies who disclose more are rewarded.

Anon Analytics-the new Wikileaks of Equity Research?

Sell Side equity research has been critiqued for its inherently conflicted business model, where issuer pays. Unlike credit rating agencies, there is no statutory mandate for equity research, nor is there a fair dealing provision for access to company. Therefore, any sell side analyst,even if objective, will think twice before giving a SELL rating/publishing bad news because that may cutoff access to the company, and 'disadvantage' him in relation to the other analysts. Whether more access to management is an advantage(better insight) or a demerit(familiarity bias) is a value judgement I leave to the reader. But despite the delinking of investment banking mandates to equity research compensation, the fact remains that 10years after the 2001 Spitzer settlement, things have not improved much. Research on herd mentality does state that crowds tend to go berserk, because each member of that crowd revels in anonymity, and thus allows the animal spirits/suppressed side to come out. Given that published equity reports are likely to err on the optimistic side, anything that encourages the negative side to be more extensively published/reported, is only a good thing. But don't short sellers anyway plant news articles, talk down the stock and 'manipulate prices'? What new can an anonymous equity research report accomplish? For one, the report mentioned here(http://anonanalytics.com/pdf/Chaoda.pdf) is 100% based on public information. They have creatively used a mosaic of reports, transcripts, primary research, public filings etc to weave together a damning indictment of that company. And in that sense, it is simillar to Wikileaks(in terms of audacity, novelty), but different in the sense that no confidential information is disclosed initially. Perhaps to prevent a Wikileaks type attack on their servers, they have warned that if their identities are ever compromised, they would release the (for now) non public information password on the internet, which would presumably raise even more furore. So why will this succeed? I'm sure that several equity research analysts have a conscience, which is hardly slaked by having to sugar coat reports to avoid seeing their bonus pools shrunk/relationships harmed. Given the facility to submit reports anonymously, with the editing/fact checking being done by that website, I can almost visualize a Wikipedia type crowdsourcing of work, culminating in a series of reports. Of course, it would be negatively biased, but we have enough positive stuff out there! Relying on 100% public(or verifiable) information may seem restrictive, but as websites like footnoted.org show, there is often gold hidden away in those filings which analysts miss due to information overload or just lack of interest/training. Hence, this scope should permit scalability(easier to verify/fact check reports) and make markets more efficient.

How to get elected as a small shareholders director of India

Below is a checklist for the same, reflecting my understanding after reading the relevant rules(http://www.mca.gov.in/Ministry/actsbills/rules/TCAotSSDR2001.pdf) and some analysis.

1. Does this apply to the company? If the company has paid up share capital(excluding reserves & surplus but including preference shares) of 5 crore or more OR it has 1000 or more small shareholders. The first criteria(5 crores) can be seen from balance sheet but only the company will know about the 2nd criteria(1000 or more small shareholders) because the quarterly shareholding reports those with shareholding
2. Are YOU a small shareholder? Check the face value of the share(say Rs 5). As you should not hold more than Rs 20,000 nominal value, that means that you should not own more than 4000 shares(viz Rs 20000/Rs 5). Even if the market price is Rs 1000 and your value of shares is Rs 40 lakh, then also you are termed as small shareholder! This is the vagaries of law.
3. Are YOU eligible to be a small shareholder director:- If you are already a small shareholder director on Board of 2 companies, you cannot take this additional post. The routine disqualifications(insolvency, ceasing to hold ownership, court orders etc) apply.
4. Get the support of 100 such shareholders - note that even 100 shareholders holding ONE share each can nominate one person as their small shareholder director. In practice, unless you are in an investor association OR investors are unhappy with dividend/share price return as in case of Geodesic, this will be difficult in practice.
5. These 100 small shareholders should sign the notice to be sent to the company, nominating another 'small shareholder'. They should leave a notice of their intention with the company at least  14 days before the meeting under the signature of at least 100 small shareholders specifying name, address, shares held and folio number and particulars of share. The proposed nominee should file his consent with the company, to stand for election.
6. The company sends postal ballot to investors(http://mca.gov.in/Ministry/notification/pdf/G.S.R_30may2011.pdf), To save the cost, it will well decide to appoint the director nominee in case nobody else is interested. As mentioned in the Section 252(1), 0nly small shareholders can vote on this matter, so the company would only need to send them the ballot

 PROS:- Way to get on the Board, and be informed of key decisions and push for transparency, creating this nuisance value. Also, not reelected each year, so continuous 3 year stint. For public sector banks, a similar rule applies and there are candidates who contest those elections well. So no reason why this should not happen here also.
CONS:-From the angle of the company, the nuisance value may go up for those who may try blackmailing the company to pay them off!
Disclaimer:- I do not know of any small shareholder director, despite the provision being around for 10yrs+> Maybe the investors do not care/are not aware. This post will help the latter, not former.

Asian Electronics fraud on investors by repricing stock options

When I opened the FY11 annual report of Asian Electronics(http://www.aelgroup.com/AEL_Annual_Report_2010-11.pdf), I got a shock by looking at the options repricing resolution. Stripped of all the legal jargon, they want the shareholders to lower the exercise price of options from Rs 28 to Rs 12.6 viz Rs 17.4 reduction. These options were granted hardly a year ago(viz 31st March 2010), and now they are seeking post facto approval because. In view of such depressed level of market price of shares, exercise of stock options at an exercise price of Rs. 28/-per share became unviable for all the grantees... revised the exercise price from Rs. 28/- per share to Rs. 12.60/- per share, to bring the exercise price in consonance with the prevailing market price of the shares of the Company

This logic is flawed. Options are not meant to be at the prevailing market price UNLESS the holders intend to exercise it  immediately, in which case they could have got it from the open market. They obviously intend to hold it till Mar-15, and exercise it when the price jumps over Rs 13.

Now, these options were exercisable within 5 yrs viz Mar-2015. But evidently, the directors and employees are in a hurry to cash out. Poetic justice perhaps further reduced the share price to Rs 8 as of today, so will they pass another resolution to reduce the exercise  

So how much are they profiting from this?

1. The 4 non executive directors are having 1 million ESOPs reprices=>a benefit of Rs 17.4 million.
2. Other key employees are having 3,51,550 ESOPs repriced=> a benefit of Rs 6.2 million.

One can justify the need to retain employees by repricing their stock options, but repricing for non executive directors? It smacks of a Faustian Bargain 'You scratch my back I scratch your back'. One would have thought that the self described eminent professionals with experience in over all management, finance and law, who bring a wide range of skills and experience to the Board would be above doing something like this, but evidently Rs 17.4 million is the price of their conscience.

Granted that this is subject to confirmation by shareholders but I wonder how did

• The compensation committee(all the said Non Executive directors) vote itself options repricing)?
• The nominee institution directors agree to this?(maybe because this saves an monetary outflow)?
• They ever think of seeking 'post facto' approval and seeking fait accompli. 

No wonder then, that Asian Electronics's reputation on the bourses is trash. 

Are Mutual Fund trustees neglecting their duties?

As anybody conversant with the functioning of an AMC would know, there are ways to circumvent the statutory caps on fund management charges, expense ratio and brokerage. Till SEBi intervened, the practices were going on unabated, with the 'trustees' being passive onlookers rather than standing up and earning their fee. Atleast, independent directors of companies do resign when the mismanagement gets too much, but the esteemed mutual fund 'trustees' presided over

1. Inflating advertising/marketing expenses of AMC to give under the table commissions to star MF agents. While this hit the AMC bottomline(as the overall expense ratio stayed fixed), the trustees should have scrutinized the expenses, which they did not
2. Not ensuring that soft dollars benefit goes to the mutual fund. Agreed that SEBI regulations are silent in this regard, but soft dollars(non monetary credit for AMC expenses like research) offset against brokerage business, allow the AMC to post a lower expense ratio than justified, because it is paid for in higher brokerage rates(which affects net return but does not show up!). While SEBI regulations against concentration of broking business of MF somewhat contain this practice, it does go on unabated. 
3. Championing NFOs Till SEBI intervened to stop the practice of simply relaunching existing mutual funds as NFOs, no trustee/AMC director(to my knowledge) put their foot down and refused to allow the practice. And why would they? Their fees would be endangered.
4. Allowing opaque valuations of debt funds:- The FMP valuation controversy was whether illiquid securities were properly valued or not. Trustees should have ensured this, but nothing happened. 

MF trustees are expected to play the equivalent role to independent directors, but the extent of legal codification is much lesser for those 'trustees', who can therefore get away with laxity. While this post does not tar all MF trustees with the same brush, one must be wary before placing much reliance on their supervision.

JJ Irani resignation from Everonn-is he fit to be an independent director?

Last Saturday, I opened Mint to read the shocking news of Everonn systems independent director Dr JJ Irani having resigned(http://www.livemint.com/2011/09/03011242/JJ-Irani-quits-Everonn-govt-s.html?h=A1). In an interview to Mint, he had said that I value my name more than anything else. I associate myself with corporate governance. A smear has been created and I don’t want to associate with a company that is being investigated. It is precisely this attitude that I take contention with.

As a senior Tata Group leader, drafter of the companies Bill 2009 and a renowed professional, Dr JJ Irani needs no introduction to those tracking the Indian financial sector. His practical and professional corporate governance experience made him perform a due diligence on Everonn and convince himself of its business mode, before he accepted an independent director's position. I'd blogged earlier(http://thescambuster.blogspot.com/2011/07/independent-directorsauditors-not.html) on this phenomenon of independent directors fleeing scam hit companies in droves. In case of Dr Irani, it is even more perverse than described in that post because

1. As a chartered accountant, he's well equipped to appreciate and assess the merits and issues of the tax case and guide the company
2. While directors are not bound to stick with the company through 'thick and thin', it makes no sense to appoint a director who will abandon you at the first sign of distress. 
3. Unlike Satyam, the business model is not in dispute here, only the management integrity is. 
4. By resigning, he has made it worst for the company when it needed the support of other investors the most. Now, even the Indian Govt(which had given 25% of national skilling program contracts) to Everonn, is worried.
5. He had the competence, training and reputation to steer the company out of waters like how the 3 independent directors appointed later had done for Satyam. Unlike the earlier Satyam directors, this tax episode had not sullied the independent directors at all. 

As a company considering to appoint an independent director, I would certainly hesitate now because why should I pay them hefty fees/ESOPs/training if they will eventually ditch me in times of distress? As it is, the Indian Corporate Affairs Ministry(MCA) does not prosecute independent directors for routine law violations by companies, thus giving them additional security. The directors should rely on this and support the company in its kind of needs. Even the full time employees do not have a fiduciary duty to the company like how independent directors do.  This duty should be discharged when the time comes, not relinquished.  This single event made me lose my respect for persons who place their personal 'reputation' over helping investors and the companies.

Paying commission on adjusted operating net profits-L&T sets an example

L&T is one of India's best managed and governed companies. The remuneration was on the lower side compared to competition, but now they decided, as part of their 2015 strategic plan to revise top management remuneration. Now, the companies act allows commission to be paid on basis of net profit-not adjusted for exceptional gains. If at all companies have adjusted this, it has been to exclude impairments etc. But now, L&T has set an example. In its FY11 AGM, it has requested shareholders to approve managerial commission on the net profits after tax of the Company and excluding extraordinary/exceptional profits or losses arising out of sale of business/assets/sale of shares in subsidiary/associates/SPVs/JVs/, and also from sale of strategic investments/adjustments in value of strategic investments. 

A cynic could argue that till the point of sale, impairment of strategic investments are excluded from the profit computation. But then, one must admire the beauty of this scheme. It does not reward 'inorganic' profits, like say how a Jack Welch could have earned from just splitting the entity/financial engineering. And given L&Ts plan of divesting its subsidiaries/stake sales, this little spotted loopholes could have earned millions for the managerial staff.

The reason why public sector company audits take so much time.

This term, my friend and I were doing a project to rank annual reports of Nifty companies. While the private sector cos(barring R-ADAG group cos) have largely released their annual reports within 4 months from year end, public sector companies have not. Only SBI(being a bank thereby subject to 'peer pressure' of releasing accounts within 1 month) has done so, while blue chips like ONGC have not. Why is this so? One cannot even blame the respective Government department for that, because these companies have substantial functional autonomy, and have functioning Board of Directors to approve the accounts.
The reasons are

1. C&AG issues additional guidelines to the statutory auditor(http://cagofindia.delhi.nic.in/caempanel/directions_2010.htm). Most of these points are anyways checked within the scope of most well planned audits, but some of these guidelines involve substantial elements of operational audit, performance audit and 100% check-which all eats up large amount of time.
2. Also, while the auditee PSU is bound to provide all information expediently(http://cagofindia.delhi.nic.in/caempanel/annexure-terms2011.htm), the draft audit report must be approved by the C&AG Audit Boards, which may seek the audit working papers as well. This ability to requisition working papers routinely, is unique to such audits, and makes the auditor wary of even the smallest mistakes, thus reducing the materiality limits. 
3. The C&AG may take its own time to approve the draft audit report, adding its own comments later
4. Once the accounts are finalized, the concerned Ministry then kicks in with its demand of dividends(as per Finance Ministry edicts). This negotiations with PSU management eats up more time. 

Therefore, delayed circulation of annual accounts for PSUs is not a sign of poor accounting/corporate governance, but is a systemic issue. Investors should keep this in mind. 

Great Offshore-structuring compensation to escape Government approval.

Whenever the Government tries to limit executive pay, self appointed defenders of Indian corporates(academics/media/industry leaders) rally against the intrusion of government into the private matters of companies. What people often forget(while seeking Western type freedom to pay 'top management') is that

1. The number of FMCs(Family Managed Companies) in India, is much more than abroad. 
2. The use of remuneration consultants etc to justify pay rarely happens in India
3. While appointing family members to executive roles in companies, rarely is a pretense even made of 'merit based appointment'. Instead, succession plan reasons etc are given. Fine, owners have that right I guess. But why pay top dollar in those cases?

Take the example of Great Offshore. One of its promoter's relatives Ms Sukriti Kumar is a MBA In Entrepreneurial studies from some USA college,  with some experience(manpower related is my guess given Hewitt Industries). Adequate details are not given about her experience in Bharati Shipyard, that qualifies her for this high pay of Rs 3 million/year. Given how companies would flaunt the credentials of their relatives, one must assume the worst. And I'm certain that for this compensation, attracting India's best college alumni would not be an issue, for a 'corporate planning role'. Read the resolution below, and notice how carefully they have designed the pay to avoid crossing the statutory ceiling. If the ceiling was even 2x of its current limit, I'm confident that the pay package would have been that. By not crossing this limit, were they afraid of seeking Govt approval? With such practices, Indian cos show a regrettable lack of adhering to corporate governance codes.