Monday, August 1, 2011

Mahindra Composites Ltd - AGM

Hello again! In the last post, I had wished you all a happy AGM season! Me and my colleague attend lotsa AGMs.. Lets just discuss a bit about what happened recently at an AGM I attended. A fair warning; this post does not contain any buy/sell advise or does not offer any opportunity for the reader to earn money. For what its worth, it will be useless for a majority of readers! :-D


Ok..just a bit of basics first..

  • A company is owned by its equity shareholders, who appoint a group of people to manage the company on their behalf (Board of Directors)
  • Once a year, these managers meet the owners to discuss what all they did and what all they intend to do going forward (AGM)
  • Usually, the Board of Directors and the management of the company treat the shareholders with professional courtesy and at least a bit of respect.
Now lemme just tell you people what happened at the recently held AGM of a company called Mahindra Composites Ltd, which is part of the Mahindra Group.

A couple of days before the AGM, a Mumbai based analyst friend of mine called up the CS of the company. The problem was that he had bought the shares a bit late, so he was not a shareholder of the company as on the applicable record date. My friend enquired whether he would still be allowed to attend the AGM. Now usually, companies do allow such analyst-shareholders to attend the AGM (although, legally, they can surely disallow). In some cases, the company people politely refuse, saying that as per law, such request cannot be entertained. However, the reply of the CS of Mahindra Composites to my friend was "kya re, mere baap ka company hai kya? I said no..Dont ask again!!" Thats one hell of a rowdy CS, we thought!  :-D

So my friend (very wisely) decided not to come all the way to Pune, from Mumbai to attend the AGM. I, on the other hand (not very wisely), went ahead for the AGM. And it turned out to be one of the most pathetic AGMs I ever attended. Here is what happened...

  • Myself and one more person who came late, were the only non-employee shareholders at the AGM. All other shareholders present were employees, wearing the company's uniform.
  • Mr.K (lets call him so), the CFO, came across as an extremely rude and arrogant person, who does not display a ounce of professionalism, taking shareholders fully for granted. Upon seeing my questions which i provided in printout form, his response was "these questions have nothing to do with the AGM of the company, hence they will not be answered". (Although the questions were related to the company's performance and its plans in the near future.. Discussing all this is actually what the AGMs are held for!!) During the AGM too, i asked one question, but was asked to sit down by the CFO and was not allowed to ask questions to the CEO. After being polite for a while, i had to raise my voice (something which I never ever do anywhere!). After about 5 mins of heated arguments, he said that most of the questions are forward looking, and will not be answered by them since 'SEBI does not permit them'. :-) Creating a bigger scene and disrupting the AGM would have been easy, but I thought there is no sense in letting ego come in between..And that wouldnt have been very professional on my part too..
  • Mr.K then asked me how many shares i own? (My shareholding in Mahindra Composites is only 1 share, bought for Annual Report purposes). Upon learning that, Mr.K suggested that i should not bother asking questions, since i hold only one share. So, i asked him if the management of the company treats small and large shareholders differently. To which, he replied yes!!! The entire staff left immediately after the resolutions (which got over in 15 mins), leaving no chance for asking questions.
  • Even post the AGM, the CFO was extremely rude and essentially was asking me to get lost (though not directly, of course!)
So what do we gather from this?
  1. A good Group pedigree does not automatically mean good management. 
  2. As minority shareholders, we have to humbly learn and admit that we are nothing! And sometimes, people like Mr.K will remind us that!! Well, a dose of humility never goes waste! ;-) 
  3. Things like these affect investing decision making (I would not buy the shares of such a company where the management thinks that ye to apne ghar ka company hai. Shareholders and all are just a formality!) I just cannot think of partnering with such people, by buying shares of Mahindra Composites. 
  4. However, such factors cannot be brought in an excel sheet. So we should all remember that there is life beyond the excel sheet and a huge number of investment decision making factors lie outside the purview of the excel sheet.
So cheers and happy investing!!

18 comments:

Shankar said...

Tough luck Neeraj. Well at least I have one less company to consider when investing. I haven't attended any AGMs yet, but after this, I would think twice before wasting time on one..
But we still need to consider this sort of management's quality when buying a company (never mind if its one share or a million shares).
Interesting posts. Keep up the good work.

Raja said...

That was unbelievably rude of Mr.K. High chance that he has been in the same company for long time and hence thinks, no one else matters. And that's probably even more horrifying as it reflects the inside story of how the management treats shareholders money.

Regards
Raja

Jatin said...

thnks for this post. I have never attended an AGM before. But learning that such things happen to minority share holder is indeed painful. Yes ur right one should be away from such co. where managers are like nuts...

Anonymous said...

Some thoughts:
1. Mahindra Composites is actually thinking of a rights issue - raising MORE money from its shareholders, which it doesn't give a damn about. Shameless!
2. Anand Mahindra probably isn't aware about all this happening behind his back - he should organise Corporate Governance & Investor Relations course for his CS, CFOs and also a course on Basic Etiquette.
3. Mahindra & Mahindra should delist all its smaller subsidiaries and associates. Why bother with small amounts and smaller shareholders??
4. Neeraj, why didn't you begin your queries with a sher or better, a gazal, praising the mgmt? You could have got all your answers plus the next years Annual Report.
5. The reputation damage caused by 10 minutes of such action by the CFO could have been substituted by 5 minutes of polite refusal or general answers.

Anonymous said...

Hi,

AGM is western world's way of conducting company's affair. Indian lawmakers copied this concept from west, but they didn’t care to change it based on the ground realities.

1) Voting is non affair. i.e all voting are generally accepted. Nothing substantially happens here
2) NO proxy fighting / Director Appointment. Very difficult for a majority owner to appoint a director (CEO who owns 1% of the company will ask you to send your resume, when you in fact own 3-4 % of the company)
3) Control / Ownership are still not clearly defined. (I am not sure why a CEO owns 1% of the company does capital allocation for Majority of the owner)
4) Shareholders also just trade and they don’t care about Annual Reports / AGM / CEO

AGM: This is what happens
1) They will give you tea when you come to the Hall
2) They will welcome You
3) Chairman and CEO take turn giving presentation
4) Voting – on non essential matter (For important matters , they will do a Postal Voting which will never arrive)
5) Q & A : Usually disgruntled shareholders asking silly questions. CEO replying that he is not responsible if the share value goes down

I have personally attended AGM where the CEO giving important info (buying ships) related to the company which is not yet revealed to SEBI (he never revealed it and the co is suspended from trading in BSE / NSE )

I think AGM is western concept and waste of time for everyone involved, we need to find some of own idea of conducting the business matters of the company.


Regards
Vishnu

Anonymous said...

Hi,

AGM is western world's way of conducting company's affair. Indian lawmakers copied this concept from west, but they didn’t care to change it based on the ground realities.

1) Voting is non affair. i.e all voting are generally accepted. Nothing substantially happens here
2) NO proxy fighting / Director Appointment. Very difficult for a majority owner to appoint a director (CEO who owns 1% of the company will ask you to send your resume, when you in fact own 3-4 % of the company)
3) Control / Ownership are still not clearly defined. (I am not sure why a CEO owns 1% of the company does capital allocation for Majority of the owner)
4) Shareholders also just trade and they don’t care about Annual Reports / AGM / CEO

AGM: This is what happens
1) They will give you tea when you come to the Hall
2) They will welcome You
3) Chairman and CEO take turn giving presentation
4) Voting – on non essential matter (For important matters , they will do a Postal Voting which will never arrive)
5) Q & A : Usually disgruntled shareholders asking silly questions. CEO replying that he is not responsible if the share value goes down

I have personally attended AGM where the CEO giving important info (buying ships) related to the company which is not yet revealed to SEBI (he never revealed it and the co is suspended from trading in BSE / NSE )

I think AGM is western concept and waste of time for everyone involved, we need to find some of own idea of conducting the business matters of the company.


Regards
Vishnu

Neeraj Marathe said...

Hi Shankar,
Yes, tough luck indeed..and coming from a mahindra group company, its tougher indeed!! AGMs are generally a waste of time, but the major reason for that is some really useless shareholders who ruin the AGM with bakwaas comments n questions. However, most managements talk informally post the AGM, which is why i go for AGMs. Otherwise, for lotsa companies, there is no other chance to interact with the mgmt..
cheers!
Neeraj

Neeraj Marathe said...

@ Raja and Jatin,
Ya, absolutely agree with u..
Cheers!
Neeraj

Neeraj Marathe said...

Hi Anonymous,
Yes, the rights issue makes it even more interesting. If they do not like the shareholders, maybe they should have tried for an FCCB or something :D Even more ridiculous than the rights issue plan is the plan to merge all the group companies..i do not understand why they are diluting in the first place in that case..
A big LOL on the shero-shayari thing..am sure u have attended quite a few agms urslf..
Cheers!
Neeraj

Abhishek said...

Good post. very strange considering it is a Mahindra group company. I thought Anand Mahindra had got back some sense into his companies. Apparently not!!

Regards
Abhishek
http://valueinvstr.blogspot.com

Rajat said...

This is very useful regarding the management. I was considering the stock for investment. This information certainly helps Neeraj.

Regards.
Rajat

Bhaskar Jain said...

Thanks for sharing your experience. I had read that Warren Buffet buys 100 shares of companies just to get the annual reports and reads them word to word. You have outdone him by buying only one share!! Nice strategy to keep track of companies :)

Thanks again.

Anonymous said...

If this was the treatment from a Mahindra group company, I wonder what should a investor expect from much smaller companies?

High time Indian companies learned a lesson or two about corporate governance. Writing about corporate governance in 2 paras in the AR is NOT the end.

Neeraj thanks for bringing this to our attention. Hopefully someone from higher management in Mahindra group reads this and some sense prevails.

Regards,
Rahul

Neeraj Marathe said...

Hi Rahul,
I completely agree with u. I have put up another post on the issue..Plz do go thru the same too..
Cheers!
Neeraj

Rohit Chauhan said...

hi neeraj
i think it also comes down to basic human deceny and culture

if someone comes to your house, even if he or she is not the CM of the state, will you not atleast behave decently with him

rgds
rohit

Neeraj Marathe said...

@ Vishnu,
Thnx for the response..i agree with virtually every point you say..

@ Rohit,
Yes, it was indeed surprising. In a lot of AGMs, managements do not answer questions properly or sideline the questions..however, in my 8 years professional career as an analyst, this is the 1st time something has happnd in this fashin!
Cheers!
Neeraj

Anonymous said...

if the company is performing i would still go and buy the shares. after all its about money and not about such stupid and trivial incident. this cannot be a strong point for any individual to decide not to invest in the company. only an egoistic moron investor would depend on such data to make his decisions.

Neeraj Marathe said...

Dear Anonymous,
Ok!
Cheers!
Neeraj