Tyranny of the Dominant Shareholder: Hobson's Choice before ONGC Board

Abstract

The case describes a situation where the government as the dominant majority shareholder in a listed Public Sector Enterprise (PSE) directs it through its executive Chairman (a government selected executive) to buy a part of government's stakes in another listed PSE, in which also the government is a majority shareholder. The Chairman is summoned for a meeting in the governing ministry and ‘persuaded' to agree to the proposal, without the proposal having been discussed in the company's board. Being a government appointed employee, the Chairman faces the difficult task of putting the matter for discussion in the board while informing the board that he had already agreed to the proposal. The case describes the events that preceded the board meeting to discuss the proposal. The board faces the unpleasant task of dealing with the Chairman's lapse in not taking the board into confidence prior to his agreement conveyed at the ministry meeting. A bigger difficulty was the possibility that the proposal was not desirable from ONGC's point of view. How will the board then convey the decision to the government? What levers does the board have to deal with the matter?