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Are India’s Business Owners Paying Themselves Too Much?

An IIAS study points out how Business Owners are voting in their own salaries despite poor investor support

By Govindraj Ethiraj
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Are India’s Business Owners Paying Themselves Too Much?

On today’s episode, financial journalist Govindraj Ethiraj speaks to Hetal Dalal, Institutional Investor Advisory Services (IIAS) president and COO, as well as Mahesh Uppal, director at Com First and well-known telecom analyst.

  • <00:46> Are India’s Business Owners Paying Themselves More Than They Deserve? with Hetal Dalal
  • <11:27> Jio’s New Low-Cost Phone. What Exactly Does it Deliver? with Mahesh Uppal
  • <20:20> How walls are coming up in the cloud?
  • <23:40> And Hmm..the Government Actually Said It Will Not Regulate Something




NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it’s Wednesday, the 5th of July and I’m Govindraj Ethiraj coming to you from Mumbai, India’s financial capital and most rocking city in the world

Our top reports for today

  • Are India’s Business Owners Paying Themselves More Than They Deserve?
  • Jio’s New Low-Cost Phone. What Exactly Does it Deliver?
  • How are walls coming up in the cloud?
  • And Hmm..the Government Actually Said It Will Not Regulate Something

Are Indian Promoters Paying Themselves Too Much? 

An Indian School of Business study says some 91% of all listed firms in India are family firms. This means they are either majority-controlled or majority-owned and in most cases are also run by the same family.
The biggest examples we can see in India are Ambanis, Birla, Adanis, Jindals, Munjals of Hero, TVS in south India and many, many more.

It is then perhaps to be expected that families who run companies also control what they get paid, given that they have the shareholding strength to pass any compensation that they would like or rather, is the outcome of their own judgement as opposed to the more likely minority shareholders. Yes, we are talking about listed companies here.

A study by the Institutional Investor Advisory Services in Mumbai has said that promoters are voting in their own salaries despite poor investor support.

IIAS looked at 201 remuneration resolutions for promoters in 2022 and found that 68 or 34% of these would have been defeated had the promoters not been allowed to vote or did not vote.

IIAs looked at some 4,991 resolutions in all, of which 579 pertained to executive directors and the overall board, of which 201 pertained to the remuneration of promoters.

There are many cases IIAS points out where the non-executive chairman — in a textile company as it happens - took a large package while the CEO was paid much less.

The larger point is that promoters may let go of management positions and the responsibilities that come with executive roles but still take more salaries than those holding executive positions including a CEO.

Of course, compensation is a fairly nuanced issue and in many cases, shareholders may be perfectly fine with all these permutations. Nevertheless, it does appear that in many cases they are not fine and have expressed their opposition as the figures in this report suggest.

It also turns out that apparently in some instances investors abstained from voting on promoter compensation and yet in the same meeting, they voted on auditor fees. IIAs feels this could be because of the promoter’s own gravitas or imposing presence that causes them to hesitate.

Of course, the larger and the critical issue is disclosures and governance. To understand this and what are the issues at stake, I spoke with IIAS President and COO Hetal Dalal and began by asking her to explain what the study was really telling us.

And before I go, in general, most shareholders are getting even wealthier.

Equity markets settled at record closing highs yet again on Tuesday.

The S&P BSE Sensex hit an all-time high of 65,673 in the intra-day trade. It, eventually, settled 274 points higher at 65,479. The broader Nifty50, too, closed 66 points higher at 19,389 after hitting a lifetime high of 19,434 during the day.

Jio’s New Rs 999 Phone, What Exactly Does It Deliver?

On Monday, Reliance Jio announced a new phone costing Rs 999 with internet which it said would liberate some 250 million 2G customers across India, referring mostly to feature phone users who do not own smartphones.

Yesterday, several investment banks issued fairly glowing reports on how this new instrument bundled with proprietary video, audio and payment apps would be game-changing.

A quick sampling of the reports before we come to the point.

Bank of America Securities says this will increase the competitive intensity in the market as users may be enticed to move to these plans. It also says unlike Jio’s earlier offerings which were bundled, this one is cleaner with no frills attached.

JM Morgan said this would help Jio gain market share post the fading success of JioPhone devices, an important pointer to the problem that there was.

Emkay Global said the previous Jio Phone had helped transition over 100 million 2G users to data networks and Jio Bharat can transition over 100 million users if there are no supply chain or product-performance hiccups.

Almost all brokerages saw this development as a negative for Bharti Airtel. Jeffries, another bank, said Bharti Airtel dominates the 2G market with 54% subscriber market share, the new 'Jio Bharat' Phone is likely to see a higher impact of this move, the note said.

Now, it’s been a while since we’ve seen a device announcement at this scale by Reliance followed by of course the reports I just referred to.

So my question was, will it? Will this device really shake the market some are projecting?

I reached out to well-known telecom analyst Mahesh Uppal and began by asking him about the 2G or feature phone market with 250 million subscribers and how he was seeing the potential transition to 4G and more importantly, whether it would be as smooth as it appeared.

America To Restrict Cloud Computing

A few years ago, we were trying to render some 3d images for which we did not have the computers or the computing power to do it in the time we had to deliver the output.

Someone told us that you could reach out to a company in China that would do a 3D architectural rendering or animation if that’s what we wanted.
We could upload the images and get it back even as their computers worked 24X7.

This was quite a wild concept particularly since we were wondering where in Mumbai city we could find the computers to do this and at what cost.

Fast forward now. The US Government may restrict Chinese companies' access to U.S. cloud-computing services, the Wall Street Journal is reporting.

The new rule, if adopted, would likely require U.S. cloud-service providers such as Amazon and Microsoft to seek U.S. government permission before they provide cloud-computing services that use advanced artificial intelligence chips to Chinese customers, sources told the WSJ.

The Biden administration’s move would follow other recent measures as Washington and Beijing wage a high-stakes conflict over access to the supply chain for the world’s most advanced technology.

Beijing Monday announced export restrictions on metals used in advanced chip manufacturing, days ahead of a visit to China by Treasury Secretary Janet Yellen.

While this is not surprising in itself, such a move from the United States does not portend well.

Remember, the cloud is the cloud, part of a world where digital or information highways would seamlessly connect with each other, like we did some years ago to get images rendered in China.

Without getting into right or wrong, it is clear we are building more walls in a digital world. We have already seen several moves to co-locate servers for data storage or separate the computing and storage from the parent company.

TikTok is a classic example where there is immense pressure on the company to separate its entire infrastructure and corporate entity from its parent Byte Dance, at least in the United States.

Interestingly, TikTok never existed in China. There it runs under a different name called Douyin - same owner Bytedance - where it is huge too but actually came before TikTok.

This is turning out to be a different world. With more and more countries and regulators attempting to regulate or isolate computing connectivity, the world will not be quite the same as we were beginning to get used to or as efficient because the most powerful servers or computing infrastructure may be somewhere else.

Remember, this could work both ways, a local Government might also say you cannot store your data outside the country or an Amazon and Microsoft may have to commit that data would be stored in local servers only or also stored here. This is happening too, like in the case of Mastercard and Visa who have had to co-locate in India.

This is an opportunity of course, for the makers of data centres and the like, but it would shift the cost and operations parameters quite a bit. And like I said, not the world we thought we would see.

And Hmm... The Government Does Not Want To Regulate Something

In a rare display of restraint, Union Minister Piyush Goyal, also a businessman, said that startups should be governed by a self-regulatory mechanism and the Government was not keen on stepping in.

His comments come in the wake of several private market implosions that have begun across the startup sector, including though not led by Byjus, the ed tech company.

The Government should stay out of regulating startups, he said but added that it was incumbent that we try to create some framework that would be necessary to have orderly growth in this sector",he said while speaking at a, well, startup event, in Delhi.

Goyal said he has been in talks with Nishith Desai, a prominent lawyer, over startup regulations. "He spoke to me four or five years ago and said the potential is huge and the government shouldn’t intervene."
The minister recommended that a small group of startups, led by Desai, "can create some sort of a self-regulatory mechanism, before the government starts interfering in their business, or circumstances go out of control". Hmm again.

Knowing Nishit Desai’s free market bent of mind and assuming it has not changed much, I wonder how he would approach it.

But Goyal’s larger point was well taken that the IT sector which is a mainstay of a large part of India’s international trade and business has fared well with minimal Govt intervention, a point the IT industry has taken great pains to point out now and again.

Goyal says he sees the startup ecosystem, at some point, intersecting with the IT sector, and particularly with the new-age world of AI and quantum computing.

Of course, there are two contextual points to note. One, no one threw money at India’s IT sector and for the most part of its foundational stage into the 1990s, it was a sector that few even wanted to work in.

Second, startups is of course a pretty wide term but there are many who are clones of some US or China enterprise trying to address a fairly imaginary Indian market so they will eventually fade out or die.

There are others who have more advanced technology, including in AI and they might intersect. At this point, it’s more of a hope rather than a strategy and I would bet on India’s traditional IT rather than over-funded companies.

And finally, hopefully, the government will stay out of it completely. Even self-regulation is a dangerous path to explore for something that is covered under multiple tax and company laws, apart from all the other criminal laws. The Government or the legal system has sufficient tools to go after someone if it wants to.
The rest of it is to do with ethics and purpose.
There is little a Government here.

Before I go, I would like to acknowledge Ameet Nivsarkar from Singapore who messaged me on LinkedIn saying he liked my podcasts and listened to them on the road. He added he would like to see me use fewer data points as too much can confuse and more of the Hmm section.

Points noted, thank you again, Ameet. That’s it from me for today, have a great Wednesday and see you tomorrow.