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Investor activism was always there, Satyam witnessed what shareholder activism can do, and now DLF, to its peril, is feeling the heat of ‘buyer activism’ says Gyanendra Kumar Kashyap

When Ramesh, after a 15-year long and successful career in Europe, finally joined a company in India four years ago, he introduced a number of changes in his company’s modus operandi. He faced no hurdle in getting them cleared from the stakeholders then. But today, he is having difficulties in implementing new changes. Looking at the shareholders opposition, the first question that comes to his mind, “Is this the same India where I always took shareholders for granted?”

Welcome to a new era Mr. Ramesh and all those management personnel who never ever expected Indian shareholders to come forward and actively use what their rights are. Yes, ‘passive investors/shareholders’ are a passé now. The new breed of investors/shareholders/buyers are set to change the corporate dynamics with their measured yet pointed agitations. Many may consider this as an impact of the prevailing market dynamics (read: slowdown), but then don’t we know that in recession lies the seed of revival of both the market as well as corporate governance. And perhaps, the slowdown this time has taught the shareholders to be active rather than being passive and showing their discontent by just selling shares. They have understood, the hard way though, that passive discontent neither serves the purpose nor does it creates an impact on the management. Now when their investments are touching new lows on a daily basis, investors are ready to question a number of corporate decisions.

Peter Paul de Vries surely is an unheard name in the investor/shareholder/buyer activism domain in India. But as the head of the Dutch shareholders association, VEB; his success, in dragging ABN AMRO’s management to the court for bypassing shareholders while selling one of the bank’s most attractive assets, must have inspired many at Satyam, Subhiksha, Hiranandani Group et al. Though not new in the West, there have been rare instances in Indian context when investors/shareholders/customers have posed tough questions, let alone the concept of dissent. But times are finally changing and changing for the better. Thanks to investors like IL&FS, IFCI Sicom, ICICI Venture, Azim Premji’s trust, and Laxey Partners et al, for their activism, fraudulent nature of many promoters has been exposed. Had it not been for the institutional investors’ opposition, Satyam’s proposal to acquire Maytas Infra and Maytas Properties would have been cleared creating yet another classic case of ‘unnoticed’ corporate fraud. Similarly, ICICI Ventures, QVT Financials and Laxey Partners played the role of whistle-blowers for Subhiksha and Hiranandani Group, respectively.

But then, retail investors are still apprehensive in taking on the powerful management/promoters, owing to the complexities in regulations and the huge legal costs that come attached with such acts. However, for a change; what has taken the entire nation by surprise is the uprising of buyer activism, an off beat phenomenon till recent past. In the Indian domain, where buyers are unorganised and are meek to take on the promoters, buyer activism heralds the beginning of a paradigm shift. It certainly marks the beginning of the end of passive activism on the part of the buyers. Definitely, corporates who in their good times, rarely paid heed to buyers are all set to face the music of buyer activism.

OMR; oh, please don’t read it as Optical Mark Reader, we are referring here to Old Mahabalipuram Road (Chennai), the new hot seat of the uprising buyer activism. DLF, which is developing the Garden City Project in Chennai has been literally forced to dance to the tune of the falling market as well as the new enligtened buyers. It is a classic case of the paradigm shift that is slowly yet steadily gripping the market. Once during the good times DLF and the likes dictated the terms and as an antithesis, in times of market meltdown now the buyers are getting the things done their way. The builders who had been milking the buyers for too long with overnight double digit price rise have been literally forced to give in to the demands of the buyer.Market reports state that the DLF is willing to reduce the price of its apartment by as much 10-30% in Chennai and Bangalore and is repricing its Hyderabad project by slashing approximately 50%. But buyers argue that the new prices too are very high. However, analysts expect that this move from buyers and price cut from DLF may force many other developers to cut prices between 25-30%. Ashish Bhalla, MD, Millenium Spire, avers to 4Ps B&M, “It is an unprecedented event and has grabbed wide attention. What is noteworthy is the fact that forcing price cuts and threatening to exit cannot be considered as an aberration.”

Buyer activism may be a common phenomenon in the developed countries, but certainly, as buyers realise their power, with time the voice against their exploitation will only grow stronger and louder in India. DLF is just an eye-opener. So, Mr. Ramesh, the next time you prepare a proposal don’t even dare to underestimate any one be it the investors, shareholders or buyers.

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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