No Hedonic Treadmill for Mr. Chandran

Precisely at 1:46pm on December 28, a fax arrived at the Bombay Stock Exchange.

Fax

This rare gesture by Mr. Chandran was largely ignored by the media but when I learnt about it, I was delighted.

I do recall that in 2008, Siddhartha Lal offered to his minority shareholders at Eicher Motors a deal that he was not obliged to offer. As part of a JV transaction with Volvo, he sold a 13% of his family’s stake in Eicher Motors at a price which was more than twice the prevailing stock price. In a buyback transaction subsequent to that deal, he offered the same terms to Eicher’s minority shareholders by initiating a stock buyback program in which Eicher gave them an option to sell 13% of their holdings at the same price at which Siddhartha Lal had sold his family’s shares to Volvo. He didn’t have to do this. There was no legal obligation to do it. But he did. And that gesture went largely ignored by the media.

I am a stockholder at Ambika and a fan of Mr. Chandran. When I learnt about his gesture towards his junior partners, I wrote a thank you note to him.

Here’s what he wrote back:

I intend to live a simple life and the expenditure for that is very limited. The dividend that I receive from my Company is excess for my expenditure. The Shareholders of my company have reposed faith in me while investing in my Company and I should live up to their expectations. While they receive only dividends, I felt it should be the same for me as well.

A few days ago, I sent a note to my students titled “The Hedonic Treadmill” in which I reproduced Ben Franklin’s writings on the virtues of frugality and simplicity — virtues that are clearly present in Mr. Chandran in abundance.

END

NOTE: THIS IS NOT A RECOMMENDATION TO BUY THE STOCK OF AMBIKA COTTON MILLS. IT IS A RECOMMENDATION TO LEARN FROM THE VALUE SYSTEM OF A HUMAN BEING.

15 thoughts on “No Hedonic Treadmill for Mr. Chandran

  1. Sir,

    A very happy new year to you.

    I have one doubt on this (not for this particular case but in general on value systems). As an owner cum manager if someone is putting his efforts and devoting his time in the company for its future growth and creating value for the shareholders. So is it wrong if:

    1) As an owner he is getting the dividends (on par with other shareholders) in an ethical way

    2) Receiving compensation as a manager (in-line with the industry norms and peers) in an ethical way i.e. not receiving an exorbitant salary vs. peers

    As per my limited understanding, it is a completely separate matter whether his financial needs/expenditures are more or less as it shouldn’t have any impact on the compensation he is getting. For ex. in this case he could have received the commission and donate it all to the charity for the welfare of the society.

    So my point is, does it make much difference to you (in terms of management quality and value systems) if he would have accepted the commission as long as it is in-line with the efforts he is putting in the company?

    Thanks,
    Mukul

    • It makes a huge difference because it highlights what kind of persons they are not. But that’s just one of the factors. Investing with saintly people is not guaranteed to deliver excellent investment results. You have to also think about a whole lot of other factors relating to the economics of the business, the operating and capital allocation skills of the manager and last but not the least the valuation. In fact, someone less saintly but running a fabulous operation available at a bargain price could well prove to be a better investment. This post only dealt with one of the things one looks for when one looks for integrity of management. But more importantly it reveals some characteristics one should try to emulate.

  2. How about highlighting some non portfolio examples also, would make it much more interesting

    • You are welcome to list them here. And that’s already happening on the Twitter thread where someone mentioned Anjan Makik of eClerx and Thermax promoters. Such gestures should be highlighted.

      • Another example which comes to mind is Mr Bhadresh Shah of AIA Engineering. He took home a salary of 1.1 cr for FY15 out of net profit of 430 cr.

  3. Thanks for highlighting this prof.

  4. I APPRECIATE YOUR LETTER TO MR.CHANDRAN AND REPLY WHICH HE SENT TO YOU.
    MR.CHANDRAN IS A GREAT FAN OF BUFFET AND MANY A TIMES WE TEND TO LEARN FROM OUR IDOLS AND TEND TO REPLICATE THEIR PRINCIPLES IN OUR DAY TO DAY ACTIVITIES.

  5. Aniket Gore says:

    Prof. it is always inspiring to read about people whose values are elevated from the norm. Thank you for sharing 🙂

  6. I think it is a rare gesture from a promoter/director of a public limited listed company. It leaves a very sweet taste that the promoters are putting them at par with other shareholders. Nevertheless Company’s interest in terms in acquiring and retaining talent has to be looked when it hires competent management team. But promoters are different. They can’t leave the Company they have founded unless they sell the company. Breed of ‘investor’ is different than ‘owner/entrepreneur’. Investor can come and go whereas owners have to stick and nurture the Company.

  7. Mohammed Hingora says:

    A similar example is that of Mrs. Usha Jain, MD of Lumax Auto Technologies. After being diagnosed with ovarian cancer, the board proposed and shareholders approved excess remuneration and an additional payment of Rs 200 lacs for her treatment. However, she refused to take it, while thanking them for the gesture.

    http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/Lumax_Auto_Technologies_Ltd_290513.pdf

    Stock Price at that time : Rs. 100 approx.
    Stock Price Now : Rs. 391

    • Thanks. But my impression about that particular situation is that when the proposal was announced, some of the minority investors protested. This caused the proposal to be taken back.

      • Mohammed Hingora says:

        Well, even then, at least we can conclude that minority investors are given a voice.

  8. With all due respect Sir, i feel you have been generous in praising Mr Chandran. Reason for this statement is as follows:

    At the 24th Annual General Meeting of the Company held on 28.09.2012, Sri. P.V. Chandran was re appointed as the Chairman and Managing Director of the Company to hold the office for a period of 5 years with effect from 01.04.2012 to 31.03.2017 at a remuneration of Rs. 2.00 Lakh per month and 2% of the net profits of the company subject to a maximum remuneration of Rs. 75.00 Lakh per annum. He was also entitled to sitting fees for the meetings of the Board of Directors or the Committee thereof attended by him and not entitled to any perquisites.But, Board of Directors at their meeting held on 07.08.2013, varied the remuneration of Sri. P.V. Chandran, by withdrawing the ceiling of maximum remuneration of Rs. 75.00 Lakh per annum, effective from financial year 2013-14. ( from AR-2013).

    Now, Net profit of the company in 2012 was 23.88 Cr , 2013- 30.98 Cr, 2014- 48.14 Cr , 2015- 51.18 Cr.

    Mr Chandran, if continued with the conditions decided on 28.09.12 he would have earned 75 Lakhs per year at max. But since promoters are the best judge of the business, he smartly removed the ceiling of 75 Lakhs and pocketed huge sums ( in excess of 1 Cr in last 4 years).

    One can say he is the owner and he has all the right to take away any amount of profit as he deems fit.

    But, the heading of the article is completely opposite of reality (obviously in my opinion).

    Sir,As always, because of your article, i have learnt something new this time, that is to look for such changes in remuneration policies of the company to get an insight about management’s outlook.

    Sir, It is humbly requested, that if i am missing something, then please clarify.

  9. Paresh Shah says:

    A little perplexing Can the Board alter an AGM resolution. It would be interesting to study the facts further.

  10. mihir3445 says:

    (INR Cr./10 million) 2010 2011 2012 2013 2014
    Profit after tax 19 43 24 31 48
    Remuneartion of Mr. P.V. Chandran 0.7 0.8 0.8 0.8 1.4
    (B/A) 3.8% 1.9% 3.4% 2.6% 3.0%

    good to see thrifty management.

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