Singh brothers' feud is a wake-up call for corporate governance in dysfunctional family-run companies

  • The Singh brothers have lost control of Fortis and Religare in less than a decade

  • There are reputed family-run businesses in India involving listed companies

  • In the backdrop of all this, the Supreme Court is hearing a case involving the brothers

There are two very wealthy brothers at war with each other. There are thousands of crores worth properties at stake. There is a former confidant with whom relations go sour. There is a guru in the middle out there, trying to broker peace but then, this man from a spiritual order is presiding over an ugly feud that has utter materialism written all over.

This could be a ready-made inspiration for a gripping Netflix series than you can binge-watch on a Saturday night, but the sad part is that such a saga could be ripping you off at the back-end as a mutual fund investor and doing stuff that should upset market regulator Securities Exchange Board of India (SEBI), the National Stock Exchange (NSE) and logically, the ministry of company affairs.

The latest twist in the family feud between the Singh brothers, scions of what used to be the Ranbaxy empire, involves a criminal complaint by Malvinder against his brother Shivinder and Gurinder Singh Dhillon, head of the Radha Soami Satsang, a spiritual order, which comes soon after an economic offence complaint against Sunil Godhwani, a man handpicked by Dhillon as a trusted financial adviser.

 Singh brothers feud is a wake-up call for corporate governance in dysfunctional family-run companies

A file image of Shivinder Singh and Malvinder Singh. Reuters

The Singh brothers have lost control of two listed companies — Fortis Healthcare and Religare Enterprises — in less than a decade.

The fortunes that propped up these companies trace their origins to their grandfather Bhai Mohan Singh, founder of the pharmaceuticals-led Ranbaxy empire that fell victim partially to the rise of multi-national competitors after economic reforms began in 1991 and partly to other family tussles one involved Dr Parvinder Singh, the Singh brothers' late father and Bhai Mohan Singh himself and another, a brotherly rivalry he had with Bhai Analjit Singh of the Max group.

The problem is that these Bollywoodesque feuds are bad for corporate governance with a history that includes accusations of siphoning off money from listed companies. There are reputed family-run businesses in India involving listed companies, such as those under the Tata, Mahindra and Bajaj umbrellas. But it must be said that other groups such as the Singhanias, the Modis and of late, the Singhs, have shown the nether side of family-run empires involving drift, mismanagement or worse.

The big problem is that often, these feuds involve the bleeding of companies to the detriment of banks, small investors and mutual funds. This is an aspect of Indian business that needs increased focus as millions of minority investors and first-time mutual fund investors test the waters of riskier punts to grow wealth.

In the backdrop of all this, the Supreme Court is hearing a case involving the brothers. The top court last week refused to pass any interim order on appeals relating to the sale of controlling stakes of Fortis Healthcare to Malaysia's IHH Healthcare Berhad by Malvinder and Shivinder Singh.

Much before that, Japan's Daiichi Sankyo had acquired Ranbaxy in 2008 only to fight the then united Singh brothers later on the ground that they had hidden information that Ranbaxy was facing a probe by the US Food and Drug Administration and the Department of Justice while selling its shares.

The court case and wrangles over disclosures are symbolic of how valuable time and the future of investors can get wasted in family tussles in India's "promoter capitalism" culture. The key point to note is that mutual funds and banks often wake up late to management challenges and directly or indirectly investors and/or taxpayers get short-changed.

Given the significance of family control in India's listed companies, perhaps it makes sense for mutual funds, stock exchanges and the SEBI to have extra vigilance (maybe even some economic intelligence) to get red flags up early where corporate shenanigans or misgovernance can erode shareholder value or public faith in investing.

SEBI has kept Fortis and Religare under its scanner for corporate governance lapses, but we need to look beyond the "We-are-examining-that" kind of tokenism. The Reserve Bank of India's (RBI) Prompt and Corrective Action framework to fix poorly functioning banks could do with a corporate governance equivalent at SEBI.

(The writer is a senior journalist and commentator. He tweets as @madversity)

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Updated Date: Feb 18, 2019 20:22:33 IST