Disclosure of illness of company director

It is a hot question internationally. Should the director/top management and the company be obliged to disclose the ill health of such director/top management where the fate of the company is tied to the health of such senior director/executive? The topic has gained currency with the health of Steve Jobs - which investors tie to the fate of Apple Corp. Clearly there are two legal arguments at play. First, the interest of investors who want to know the health of the prima donna director/executive as their stock prices and the future of the company is dependent upon such health. The second and contrary interest is of the director/executive's privacy.

I believe, that you cannot have two standards - one for company with prima donna director/executives and another for companies which do not have such superstars at the helm. Given a single standard, I argue for the primacy of the privacy of the director/executive. See Harvey Pitt, former Chairman of the SEC and me on CNBC's "the Firm" discussing the issue tomorrow (29th July) 5.30 pm IST.

Indian Budget 09 - early thoughts - stock markets

The budget speaks of creating deeper public capital markets:

"39. The average public float in Indian listed companies is less than 15 per cent. Deep non-manipulable markets require larger and diversified public shareholdings. This requirement should be uniformly applied to the private sector as well as listed public sector companies. I propose to raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies."

While the aim of the finance minister is noble, the attempt may backfire. To give the issue some context, Indian regulations have over the years mandated different levels of 'public shareholding' when a company goes public and is listed. This has ranged from 40%, 25% to 10%. The 25% and 10% limits have co-existed for different types of companies, and different types of fund raising. So a company like Wipro has only around 19% in public hands while the balance is with the promoter group. To mandate a higher public shareholding may in fact make companies who wished to list - stay away from the markets. Besides, a company like Wipro, which had been assured of a minimum of only a 10% public float would feel betrayed if it was now forced to divest a larger percentage. Had it known of such a move today, it may never have listed its securities - making the markets less liquid not more.

While I support the move of the minister, I think there should be certainty on the level for the next several decades, rather than a continuous tinkering with the number. Also, for firms which were allowed to raise capital on the assumption that only 10% of the shares need be with public shareholders, they must be given a long time (say 5 to 10 years) to deal with any forced change.

Indian Budget 09 - early thoughts - STT

The Indian Budget 2009 has abolished the Commodity Transaction Tax, a tax on every transaction in the commodities markets. What is interesting is that the Securities Transaction Tax, a similar tax on securities market transactions, has not been abolished.

This blog has maintained support for the STT even while economists have called it a 'sand in the wheels' tax which reduces the efficiency of markets by introducing a cost to each trade. The rationale for the support of STT by this blog is that along with the introduction of the STT, long term capital gains tax has been removed from shares so long as the very small STT is paid. This levels the field between a majority of foreign investors who pay no capital gains tax in any case because of the use of abusive tax treaties like Mauritius and Indian investors. A transaction tax applies to all investors and negates the pre-STT neo-colonialism of the foreign investor paying no tax while the Indian investor paying the full rate.

Before removing the STT, the Indian government must modify abusive tax treaties - and therefore remove the crime of being an Indian investor.

SEBI - industry representation in SEBI

In a welcome change, SEBI has appointed someone from the market as an executive director. See SEBI Press Release here:

"Shri K.N. Vaidyanathan takes charge as Executive Director, SEBI

Shri Kavasseri Narayanan Vaidyanathan took charge as Executive Director, Securities and Exchange Board of India in Mumbai today. Prior to this assignment, he was Chief Executive Officer (CEO) in Alchemy Capital Management Pvt. Ltd.

An MBA from Indian Institute of Management, Ahmedabad, Shri Vaidyanathan has held senior positions in MphasiS, Morgan Stanley Asset Management and HSBC.

Shri Vaidyanathan has also been a member of various committees including SEBI Committee on Guidelines for Investing Abroad, SEBI Committee on Depository Implementation, among others. He is also a Member of Finance Board at IIM, Ahmedabad.

e iHe

Mumbai

July 01, 2009"

To the best of my knowledge this is only the second time in its history of two decades that it has taken someone from the private sector laterally as a senior officer. I was the first person in 2006. The only person at the Board level (at an executive position) who came from the non public sector (IIMs are legally private but factually public sector) was Prof. J. R. Varma. Curiously, all three of us share an IIM, Ahmedabad connection.