✊ Eicher's: The Small Win Big!
Eicher Motors’ shareholders refused to reappoint the man who revolutionized the company. Here's why.
Eicher Motors' shareholders proved that “power truly lies with the people” when they successfully managed to curb the salary hike of their Managing Director.
To many, this felt like a betrayal of epic proportions. Why? Because Siddhartha Lal is not just a managing director. He is the one who completely changed the face of the company. He took a company that was languishing at the bottom of the rung to newer heights.
What could be the reason that compelled Eicher’s shareholders to take such a big step?
To understand their rationale, let's first understand the company’s legacy.
Reversal of Fortune
Before Lal stepped onto the scene in 2000 as the CEO, Eicher Motors was doing just fine. From manufacturing trucks and tractors, footwear, garments, to the uber-popular Royal Enfield motorcycles, it was doing everything. All in all, the company had a diverse spread of 15 businesses!
Now, this may seem like a profitable venture when you look at it from afar. But up close, things weren't looking up for the company.
Think about it this way: if you had to manage 15 different jobs at the same time, would you manage to do any of them to the best of your abilities?
Eicher Motors was facing the same issue. It was the jack of all trades but the master of none. Here's where Lal entered like a hero to save the day!
In 2004, he sold off 13 business verticals of Eicher Motors. He decided that the company would be better off if it focused just on trucks (which had been on the scene since day one), and motorcycles, which Lal was passionate about. Lal believed that by working on these two ventures, he would be able to turn the company around. And boy, was he right!
By 2014, the company's motorcycle sales increased six times! In April-November 2020, Royal Enfield had a 95% market share in the 251cc-500cc segment. Yes, 95%!
Now, to improve the company's truck business, Lal decided to collaborate with industry experts. He teamed up with Volvo to form Volvo Eicher Commercial Vehicles. Volvo handled the manufacturing part of the business while Eicher focused on distribution. With Lal's Midas touch, this business also boomed, earning a revenue worth over Rs. 9,000 crores in 2018 (vs Rs. 5,716 crores in 2011).
So, if Lal managed to accomplish all of this then why did the shareholders reject the call for his re-appointment and a salary hike?
Simple. Money and a sense of justice.
Shareholder Activism
Since 2018, Eicher Motors has not been performing that well due to an economic slowdown and increasing competition. Plus, the pandemic further reduced the company's business. Even in this scenario, the company wanted to increase the salary of Lal during his reappointment. Naturally, this didn’t go down well with the shareholders.
They demanded to know why Lal's salary had increased at a 23% rate from 2017 to 2021, even though the company's sales had been declining.
As a result of this pressure from shareholders, Eicher Motors has now capped his remuneration package from 3% to 1.5% of the company's net profits.
The move has proved that shareholders do hold considerable power and can make sure that the company and its executives don't just look after their own interests.
This is what we call “shareholder” activism.
It's not just the bigshot institutional investors that have a say in such matters. Minority stakeholders like you and me can also make a difference. How? Through e-voting (most companies have a one-share-one-vote policy; we call these ordinary shares).
Fun fact: A group of minority investors used the e-voting system to stop Balaji Telefilms from increasing the remuneration of the company's Managing Director Shobha Kapoor and Joint Managing Director Ekta Kapoor this year.
The right to vote is powerful. And with great power, comes great responsibility. Let’s all strive to vote on matters impacting companies we hold shares of. Let’s make capitalism also more participative!
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