Listed State Owned Enterprises (SoEs) and the Treatment of Minority Shareholders – Case Studies from India.

19 Pages Posted: 2 Mar 2015

See all articles by Santosh Pande

Santosh Pande

Thought Arbitrage Research Institute

Date Written: February 26, 2015


The presence of the State as a dominant shareholder adds an additional complexity to the corporate governance challenges in organizations as often the State has goals that are different from the goals of the classic private shareholder who only seeks private gain.

While corporate governance issues, arising from the role of the State as a dominant shareholder, are a sub set of the broader issues that arises from the role of a dominant shareholder, in expropriating minority shareholder rights in an organization, there is a fundamental difference between the position of minority shareholders in a State owned Enterprise (SoE) as compared to the position of minority shareholders in a normal business enterprise. The mere act of publicly listing SoEs does not turn them into capitalist entities whose principal aim changes to maximizing the value of the enterprise; post listing the inherent conflict between broader "national interest" (pursued by the State) and the "minority interest" (pursued by the minority shareholders) often continues in SoEs leading to a principal-principal problem between two sets of shareholders who may have different objectives.

Privatization of SoEs inherently sets new terms for the relationship between the state and private capital which could give the latter an edge particularly in the transition period when SoEs are privatized. Investors, often minority shareholders, who have bought into such enterprises on listing, may declare any policy that restrict profiteering, in the guise of development, as amounting to oppression of the minority shareholders and may attempt to cow the State down. However, given that the value of the listed state entity arises, in most of the cases, from its monopoly position or from assets created earlier with public money or from assets/rights granted to the entity by the State, an obvious question that arises is to what extent are the new minority shareholders (after listing) entitled to claim exclusive rights on the value unlocked (post listing) and whether the State, as the majority shareholder, is justified in protecting its own interests (which would include broader social interests), however wrong they may be in the eyes of the new minority shareholders.

The disinvestment program in India has been going through the throes of the minority versus majority debate and the challenge is to find an equitable position between the two extreme positions – one where the majority owners view the company’s objective as being run to serve the public interest and not necessarily to maximize its profits and the other where the minority owners go to the extent of holding the board members to be in breach of their fiduciary responsibility when they meekly toe the line in respect of the decision taken by the State, as the majority owner of the enterprise.

This paper provides a snap shot of the disinvestment program in India and, in the backdrop of international best practices, draws some useful lessons through an analysis of some key instances of the treatment of minority shareholders in leading Indian SoEs and develops some useful pointers for good governance of SoEs in India.

Keywords: State owned Enterprises, Privatization, Corporate Governance, Minority Shareholders, India

Suggested Citation

Pande, Santosh, Listed State Owned Enterprises (SoEs) and the Treatment of Minority Shareholders – Case Studies from India. (February 26, 2015). Available at SSRN: or

Santosh Pande (Contact Author)

Thought Arbitrage Research Institute ( email )

C-16, Qutab Institutional Area,
New Delhi, New Delhi 110016


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