Sunday, October 2, 2011

‘Life After Anna’s Fast’ for Corporates

‘Life After Anna’s Fast’ for Corporates
The after-effect of Anna Hazare’s fast may have raised the nervousness of many corporates, especially those companies that depend on Government business. The episode is likely to have several unintended consequences for the Corporate India, many of which will have a long term positive impact on the economy. Some of these include:
Whistle Blowers may spring surprises: This fast has gained unprecedented traction among the "middle class", many of whom could be employees of large corporates, with access to crucial information.  Such potential whistleblowers could spring surprises that could affect businesses seriously, as has been witnessed in some of the recent high profile scam-tainted companies.
Corporate Governance valued more by Stock Markets: The stock markets have been less charitable to companies with direct or oblique linkages with any of the recent scams.  This could jeopardize their capital raising plans, seriously affecting their long term growth. The premium that the current market is willing to pay for good companies may incentivise many corporates to adopt better corporate governance and disclosure standards. 
Greater transparency in political contributions: Businesses could explore more transparent ways of achieving their business objectives, without a direct quid-pro-quo. For instance, one could see an increase in reported political donations in a transparent manner, as practiced in developed markets. This would do immense good for reforming the electoral process in the country.
Shift away from Govt. business: Wherever feasible, corporates could shift their focus away from B2G, as the risk perception of this segment has increased considerably. Infrastructure and mining sector could be affected, if such development happens in a major scale, forcing reforms and transparency in the way such contracts are awarded.
Political ownership in equities may fall: Direct shareholding by political class in businesses may gradually reduce, as the shareholding pattern, even in private limited companies are much more easily traceable, unlike the less conspicuous, and time-tested asset classes such as real estate and deposits in tax havens. This could result, to a limited extent, in a level playing field for other companies.
It would be naive to assume that the corruption levels in B2G (Business to Government) transactions would come down significantly as a result of this fast, any time soon.  But the recent spate of scams and heightened public awareness has put the spotlight firmly on the intersection of politics and business, and the potential fall-outs highlighted here are definitely positive for the economy in long term.

N. Muthuraman is ex-Director Ratings, CRISIL and Co-founder of RiverBridge Investment Advisors Pvt. Ltd., a boutique financial advisory firm.
This is the blog of the Print Version published in Business Line dated 3rd Oct 2011

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