DOES THE PROMOTER HAVE THE RIGHT TO PURSUE HIS "PERSONAL PASSIONS?"
By Ruma Dubey
Two years before retiring from Infosys, founder, Narayana Murthy sold some of his stake in the company to start his own angel investing venture – Catamaran Ventures.
Ronnie Screwvala, founder of UTV India, sold his 70% stake in UTV Software Communications to US-based Walt Disney in 2011 for some Rs 2,000 crore. He used part of that money to start a venture fund - Unilazer Ventures.
Reliance Industries,through its subsidiary IndiaWin Sports owns the IPL franchise, Mumbai Indians. It purchased this team in 2008; the most expensive franchisee for around $111.9 million, and this was for ownership till 2010.
And then there is the founder, Chairman and CEO of Amazon – apart from buying Washington Post, he funnels a lot of money into Blue Origin, a West Texas-based rocket-development outfit, and funded the “10,000 year clock” built 500 feet under a Texas mountain. Bezos is still by far the largest shareholder in Amazon, with just under 85 million shares, or approximately 18.5%.
There are these and many more CEOs and Chairmen around the world who have sold stakes in their company, part of it, to fund their personal pursuits. And that is precisely why one is not able to discern as to why is the market miffed with VRL Logistics – it was frozen on the 20% lower circuit.
The market is irked with the decision of the company’s Chairman and MD, getting together to start a regional airline company. They issued a clarification stating that this company would not be a part of VRL but a new venture, in their own private capacity. Yet the market is perturbed because the management will be selling part of their shares in VRL Logistics to raise money for the regional airline foray. The investment for the airline company is pegged at Rs.1400 crore and the Chairman will be diluting Rs.300-400 crore through stake sale. There will be strong shareholder resistance for this foray but the Chairman said very nonchalantly in a TV interview that he was “not bothered about shareholder approval into aviation.”
Well, everyone is entitled to share their family silver to raise funds. But the logic is – for what? If it is to fund some project, which has already been disclosed, then the selling is value accruing. But selling stake to pursue some personal passion – that too an airlines business does irk.
In the case of Narayana Murthy, we all knew he was to retire soon and was thus preparing his next innings. Reliance buying Mumbai Indians – he is the richest man and the company had more than enough cash. These instances one does not feel that it is an extravagance. Any company money used to fund personal interests is frowned upon but we need to see if any value is getting created.
In the case of VRL, airline itself has become a bad word after Mallya. We have seen how funds were siphoned off and how he lived off his various companies, using that money to feed his personal interests. At this point of time, another promoter wanting to sell stake to start an airline company thus irks.
Does that then mean that a CEO cannot pursue his personal passions? Of course he can but not at the cost of the company. For the market, selling stake for an airline is not a good idea, it is seen as a value destroyer.
It does not mean that one cannot pursue one’s interests but selling stake in a company where he is answerable to shareholders, where he has a fiduciary responsibility to his shareholders, taking up such ventures reduces value. Shareholders bought this share because the promoters put in that amount of money, not take out money to pursue their interests. So to say that he is not concerned with what shareholders think is not acceptable – the moment a company goes public, whether he likes it or not, he is answerable. That’s the price you pay for going public.