Chapter 3: THE SHAREHOLDERS MINI CASE STUDY CHAUDHARY CHEMICALS LTD A rainbow of shareholders Nent Class # was almost like a college reunion, though a totally unexpected, unplanned and unforeseen one. The seven friends met after fifteen years with no idea that they were going to meet each other of this spot and have such an important common ground to talk about. Rasheed Afzal , labol. Naseem, Basit. Omar and Wahid were in the same class at Hailey's College of Commerce Lahore's B Com batch that graduated in 1984. They all passed with flying colors and went back to their home towns, except Basit who was from Lahore. They remained in touch for a short while but gradually lost contact with each other. And now, all of sudden all seven of them met at this meeting which connected them with a common cause. voling When they were at college they used to be very close friends. In fact they were so close that they had coined a name for their group: RAINBOW. This had been cleverly thought of by Wahid who was the poetic type among the group. RAINBOW carried the initials of all the seven friends and also reflected the cause of their association. They were friends, but each had his own personality (or colors). Rasheed had joined an investment bank after graduation and was now Executive Vice President with responsibilities for investments in equities, Afzal had joined his father's family business in Faisalabad, a spinning mill. However, recently his family had acquired a significant interest in a chemicals company, though their holding was not sufficient to get a person elected on that company's board. Iqbal was now working with a brokerage firm based in Karachi that specialized in issuing analysis reports on the financial performance and position of quoted companies/ He also did some investment in shares on his own account. Naseem worked in a newspaper and was its business editor He too had considerable interest in financial reports of listed companies and personally held some shares in certain companies, Basit was now a director with Chaudhary Chemicals Ltd. one of the major chemical companies in the country specializing in production of various industrial and household use chemicals. His family owned 52% of the shares of CCL, his father was the chairman while Basit served as Director Finance and chairman of its Audit Committee. Omar was working for an insurance company that owned 7.2% of the issued shares of CCL. As General Manager Finance of the insurance company. he was looking after its investments, particularly in listed companies. Wahid, the poet among the group had no real interest in things like investments or shares. However, he had come to this meeting as a proxy of his cousin who held 1.8% of the issued shares of CC. It was no coincidence that this cousin was his employer who was running a fairly popular business magazine from Islamabad. 67 Choudhary Chemicals Ltd held in Lahore on 22 March 2010 to consider the annual The friends met after fifteen years, at the annual general meeting of the shareholders of financial statements for the year ended 31 December 2009. For some reason, the chaiman of the company, Basit's father, was held up elsewhere. This delayed the AGM and also provided an opportunity to old friends to have a really friendly chit chat. Basit which in his opinion, was hampering the growth of the company in his words, "my told the friends that his father was running CCL in an autocratic and old fashioned way, father is sacrificing long term benefits for the sake of petty immediate benefits". Basit Chapter 3: THE SHAREHOLDERS wanted a truly corporate culture at the company which he felt could come only if there were professionaltruly independent non-executive directors on the board. This was some thing his father would never let happen. The friends just smiled. They realized that between the six of them (i.e. excluding Basit) they had enough votes to put a nominee on the board of the company. At the same time, Rasheed and Omar promised that they will get their respective employers (the investment bank and insurance company) to exert pressure on CCL board to improve its governance. Afzal offered to gradually increase his shareholding in CCL and to try to become a vocal shareholder and maybe a regular director on its board. Iqbal, Naseem and Wahid undertook to use their pens for bringing about a positive change in the conduct of CCL's board. QUESTIONS FOR DISCUSSION 1. What role is each of the rainbow friends playing 2. Can these friends bring a significant change in the governance of CCL? How? 3. Would you call Rainbow a shareholders' activist group? Why? 4. Which of the friends will in your opinion, be most effective? Why