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Corporate Restructuring: Enhancing the Shareholder Value

Volume 17, Number 2 Article by Samir K Kagalkar June, 2005

Corporate Restructuring: Enhancing the Shareholder Value : By Ranjan Das and Udayan Kumar Basu, Tata McGraw-Hill, 2004, pp 285, Price: Rs. 450. :

Change is the only constant is one of the oft-repeated clichés in the business management literature. However the constant repositioning of an organisation is of utmost importance to the management, especially if the external environment is extremely complex and unstable. This would lead to a scenario where the firm has to either change or perish – such a scenario as is being played out in the Indian context since 1991, with the advent of liberalisation and the end of protectionism. This work, Corporate Restructuring: Enhancing the Shareholder Value by Prof Ranjan Das and Udayan Kumar Basu, which deals with the need for almost continuous restructuring of organisations in today’s environment, has undoubtedly benefited from the experience of these two authors in the fields of teaching/research and industry.

The book has been divided into three parts. Part 1 deals with the concepts of restructuring and Part 2 provides examples from the Indian scenario reinforcing the concepts illustrated in Part 1. Part 3 interestingly deals with the most important aspect of these business dealings – ethics. The book targets practicing managers, consultants (especially in the field of strategy, finance and human resources), and MBA students. The range of topics covered would definitely help the intended audience in assimilating the concepts and also think through them by working on the caselets/nuggets provided in the second part.

The theoretical concepts contained in the first part cover important issues in the fields of strategy, finance and HR, within the framework provided by legal and regulatory issues. The ultimate litmus test for any organisation is its financial health, and the financial benefits have to be maximised in order for the firm to survive. The application of any concept in finance/strategy/HR to the organisational restructuring has to be driven by one single goal, viz. maximisation of the shareholder value. According to the authors, taking care of this would automatically ensure that the other concerns of the firm are taken care of. Running a business without the proper support of the employees is simply not possible. Hence the employees have to be given their part of the value. Likewise, the other stakeholders including customers and suppliers have to be satisfied. It is only after all these stakeholders are taken care of, that the residual value can be appropriated by the shareholders. If the residual values can be maximized, it means that the other stakeholders are also happy. The authors describe in detail some ways of doing this – portfolio and asset restructuring, financial reengineering and internal streamlining and reorganisation, which cover the strategy, finance and HR aspects of restructuring.

A range of concepts, including mergers and acquisitions, amalgamation, spinoffs, splitoffs and business process reengineering, is elucidated through recent/contemporary real life scenarios from Indian industry. This should help the readers to internalise these concepts in a setting that is very close to him. However, the real world is not as idealistic as it should be. The Enron, Anderson, Worldcom and other incidents have shown that managers will not play the game by the rules always. Hence there is always the possibility that an organisation will maximise shareholder value in ways one cannot call ethical. This important aspect has been given the importance it deserves by devoting an entire section of the book to the role of ethics in business restructuring. The authors have presented four propositions, which stress the relationship between the ethical conduct of the firm and its long-term performance. If the long-term performance is of strong concern to every manager, it is in his own interest to take the firm on the road of ethical ways to achieve the desired goals. This part provides the larger framework within which the firm has to function. If the legal minima are lower than the ethical minima, then obviously it pays to the firm to be on the side of the ethics. The firm must not go by the letter of the law, but by the spirit, which is captured by ethics. Thus the dilemma faced by a firm like Nike, when it reengineered its operations by outsourcing to third world countries, can be resolved by this yardstick without having to go through the public outcries and protests that the firm actually faced.

The work could have been enhanced by taking up a detailed case to show the role and importance of ethics in the survival of the firm itself. Another aspect that the authors probably could have considered is the role of the institutional setting. With institutions like the capital markets, legal systems and regulators yet to take strong root in the developing economies, restructuring a firm using the western model may not be fully advisable, as argued by Tarun Khanna and Krishna Palepu1. This view could have been incorporated in this work as well.

Though well designed and presented in a hardbound volume, the book could have done without the many proofing errors that may be found. On the whole, this work will definitely be of help to the target group and will surely provoke some deep thoughts about doing and restructuring business the ethical way.

References

1. Khanna, Tarun, and Krishna Palepu, 1999, ‘The Right Way to Restructure Conglomerates in Emerging Markets’, Harvard Business Review, Jul/Aug, Vol. 77, No. 4, p. 125; —, 1997, ‘Why Focused Strategies may be Wrong for Emerging Markets’, Harvard Business Review, Jul/Aug, Vol. 75, No. 4, p. 41.

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