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MUMBAI, Nov. 22

"THE L&T open offer (by Grasim) is certainly not a test case for corporate governance. We have followed the law by the book in making the offer." — Mr Kumar Mangalam Birla, Chairman, Grasim Industries, on the sidelines of a function on November 21.

"Corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfilment of the requirements of law but ensuring commitment of the board in managing the company in a transparent manner for maximising long-term shareholder value... Effectiveness of the corporate governance system cannot merely be legislated by law neither can any system of corporate governance be static." — Excerpt from report of SEBI'S corporate governance committee, headed by Mr Kumar Mangalam Birla.

While Mr Birla has maintained that the open offer is not a "test case of corporate governance" and that Grasim has acted with its shareholders' interest in mind, the question remains whether investors in general, including those of Grasim, were informed in time about SEBI withholding the open offer.

Consider the sequence of information disclosure in Grasim's open offer for 20 per cent stake in L&T: Grasim announces open offer for L&T on October 13. SEBI decides to withhold Grasim's open offer for L&Ton November 6. SEBI communicates this to Grasim's merchant banker, JM Morgan Stanley, on November 8. The media, quoting unnamed Grasim officials, splashes the development on November 18. Grasim makes formal announcement on November 20 in its notice to the stock exchanges, a good 12 days after it receives SEBI's advice.

Now consider what the Kumar Mangalam Committee says on timely disclosure: "... Corporates are expected to disseminate the material price sensitive information in a timely and proper manner and also ensure that till such information is made public, insiders abstain from transacting in the securities of the company. The principle should be `disclose or desist'. This therefore calls for companies to devise an internal procedure for adequate and timely disclosures... "

Meanwhile SEBI... On November 20, on the sidelines of a function, newspersons ask the SEBI chairman whether it should not have at least put the information (asking Birlas to hold back the open offer) on its official Web site.

The SEBI Chairman, Mr G.N. Bajpai, tells them that the regulator "cannot be held responsible for the failure on the part of the corporate to communicate information in time to shareholders".

Contrast this with what Mr Bajpai said at a conference on corporate governance in May this year. "The role of the regulatory body in improving corporate governance would be prescriptive, preventive as well as punitive. We will have to ensure that the decision-making of corporates is in the larger interests of the investing public. It is important that the public good be kept ahead of private good."

While the realm being discussed here may be beyond the letter of corporate law, legal experts told Business Line that these might be violations of the spirit of the law. Said one expert, "Even though SEBI is not required by the word of law to inform the public of its orders to corporates, it is `propriety' on its part to do so. It is implicit in the objective of investor protection to which SEBI owes its existence." He, however, said it was binding upon corporates to disclose share price sensitive information without any delay to the public.

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