Retaining voice in the Company - Corporate Management - Majority Shareholders or group- Company Law - a case study

Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415837-61-72-84-92-94

Getting a company incorporated has become so easy in India now with few recent corporate reforms like MCA scheme or e-filing mechanism. India has been witnessing a robust economic growth and there exist a favorable environment for the corporates to enter into new ventures and to expand their business. We have seen a very good FDI in India with the liberalization policy. Many things has led India to a new level now and we can not claim anymore that we are a nation solely depending on Agriculture.

A technocrat with no financial support or base can start his own company now very easily and make his company so big soon as is the case with companies like Infosys, Microsoft and Apple Computers. This is the power of intellectual property as everybody admits.

But, it will be a very difficult experience for a promoter of a Company if somebody takes over the company in an illegal way and it happens in the corporate world. Corporates should focus on retaining their say in the company on one-side, and on the other hand they should also focus on expanding their business and getting right people and partners in the course. Judgments may go wrong at times.

There is nothing if the majority in a Company wants to retain their impact in the Company and does things accordingly. However, the majority is not supposed to oppress the rights of the minority and the laws governing the rights of the Minority Shareholders in a company arevery clear.

We see very often where majority or the promoters in a Company approaching Company Law Board seeking protection to their rights and alleging oppression and mismanagement by the minority in the Company. Infact, there is no provision in the Indian Company Law or the Companies Act, 1956 where the majority in the Company can approach the Company Law Board against minority seeking protection of their rights. Theoretically, such a situation should not arise as the Majority can do anything in the Company through Board and especially through Annual General Body Meetings. But, practically, there can be problems and majority in a Company may need protection from minority at times and the as such there are precedents saying that even majority can approach the Company Law Board under provisions like section 397/398 of Companies Act, 1956.

As such managerial personal or the majority in the Company should lay due focus on retaining their power in the Company and I would like to focus on the experience of two celebrities viz., Lee Iaccoca of Chrysler and Steve Jobs of Apple Computers as everybody knows.

Lee Iaccoca has grown step-by-step as an ordinary employee of Ford Motor Company and finally he was made as a vice-president of Ford Motor Company where he was considered equal to Henry Ford. Henry Ford is concerned at his dynasty and feared that Lee Iaccoca that Lee may takeover the Ford Motor Company eventually. The entire episode has been explained well by Lee Iaccoca in his Autobiography. Lee has expressed his unhappiness over the things in Ford and the also at Henry Ford at the relevant time. But, I would like to focus as to how Henry Ford has concentrated on his position and retaining his power forever as a person having major stake in the Company.

Lee Iaccoca's experience with Ford Motors:


"The success of the Mustang was apparent so quickly that even before its first birth day, I was given a major promotion. In January 1965, I became vice-president of the corporate car and truck group. I was now in charge of the planning, production and marketing of all cars and trucks in both the Ford and Lincoln-Mercury Divisions.

My new office was in the Glass House, which is how everybody at Ford referred to World Head quarters. I was finally one of the big boys, part of that select group of officers who ate lunch everyday with Henry Ford. Until now, as far as I was concerned, Henry had simply been the top boss. Suddenly I was seeing him almost everyday. Not only was I part of the rarefelt atmosphere of top management, but I was also the new kind on the block, the young comer who was responsible for the Mustang."
---- Para 1 and 2 of 'Encore' from Lee Iacocca's Autobiography.

"By 1968, I was the odds-on favorite to become the next president of the Ford Motor Company. The Mustang had shown I was someone to watch. The Mark-III made it clear I was no flash in the pan. I was forty-four, Henry Ford had taken me under his wing, and my future never looked better."
------ Para 1 of page 91 of "The Road to the Top" from Lee's autobiography.

Extract - 3:

"Of-course, this minor transgression was merely the last straw in a relationship that had never been very good to begin with. Henry was a king who could tolerate no equals, a point Bunkies never seemed to grasp. He tried to get palsy, you could never do at Ford was to get too close to the throne. "Give Henry a wide berth." Beacham had advised me years earlier. "Remember, he has blue blood. Yours is only red."
------- Para 2 of page 96 of "The Ford Story" from Lee's autobiography.


"Even with Bunkie gone, Henry was still not ready to offer me the job. Instead, he set-up a three-man office of the president. I was in charge of Ford's North American operations, which made me first among equals. Robert Stevenson was head of Ford International, and Robert Hampson led nonautomotive operations."
--- Para 10 of page 97 of "The Road to the top" of Lee's autobiography.


"Early in my presidency, Henry told me his management philosophy. "If a guy works for you." he said, "don't let him get too comfortable. Don't let him get cozy or set in his ways. Always do the opposite of what he expects. Keep your people anxious and off-balance."
.........Para 8 of page 104 of "The Ford Story" from Lee's autobiography.

Extract - 6:
"The next morning Henry called me in. "You're talking to too many people outside." he said. What he meant was it was all right for me to talk to the dealers or suppliers, but steer clear of Wall Street. Otherwise, they might think I was running the company, and that didn't sit too well with him."

"The same day, similar meetings scheduled for Chicago and San Fransisco were canceled. "That's it," Henry said. "We'are never doing that again."

"Henry didn't mind if I got publicity - as long as it was tied to product. When I was featured on the cover of The New York Times Magazine, he sent a cable of congratulations to my hotel in Rome. But when I got praised in his spheres of influence, he couldn't handle it."

......Excerpts from page 109 and 110 of "Trouble in Paradise" from Lee's autobiography.


"In 1975, Henry Ford Started his month-by-month premeditated plan to destroy me. Untill then, he had pretty well left me along. But in that year he started having chest pains, and he really didn't look well. It was then that King Henry began to realize his mortality.

He turned animal. I imagine his first impulse was: "I don't want that Italian interloper taking over. What's going to happen to the family business if I get a heart attach and die? Before I know it, he'ill sneak in here one night, take my name of the building, and turn his place into the Iacocca Motor Company. Where does that leave my son, Edsel?"

When Henry thought I'd steal the family jewels, he had to get rid of me. But he didn't have the guts to just to go ahead and do his own dirty work. Besides, he knew he'd never get away with it. Instead, he played Machiavelli, determined to humiliate me into quitting."
......Excerpts from page 117 of "The Fateful Year" from Lee's Biography.

Extract - 8:
"As I took my seat at the table, Henry hemmed and hawed. He had never fired anyone, an he didn't know how to begin. "There comes a time when I have to do things my way," he finally said. "I've decided to reorganize the company. This is one of those things that you hate to do, but you have to do it anyway. It's been nice association"- I looked at him in disbelief - "but I think you should leave. Its best for the Company."

"At no point during our entire forty-five-minute meeting did he ever used the word 'fired'."

"Whats this all about?" I asked.

"But Henry couldn't give me a reason. "Its personal," he said, "and I can't tell you any more. Its just one of those things.".

"But I persisted. I wanted to force him to give me a reason because I knew he didn't have a good one. Finally, he just shrugged his shoulders and said: "Well, sometimes you just don't like somebody."
.......Experts from page 134 of "The Ford Story" from Lee's Autobiography.

Relevance of Extracts from Lee Iaccoca's biography:

Extract - 1: Lee Iaccoca explains as to how his hard-work was rewarded initially at Ford before reaching the top slot as a vice-president of Ford Motor Company.

Extract-2: Lee is sharing his feeling that he would become the vice president of Ford Motor Company eventually.

Extract - 3: Lee explains about the Henry's attitude to retain his power in the Company at any cost.

Extract - 4: Lee explains as to how Henry Ford was hesitant to promote Lee Iaccoca to the position of vice-president and as to how he has diluted the top position in the Company to ensure that he enjoys unquestionable authority in the Company.

Extract - 5: Lee explains about the Henry's style of management and keeping the people who work for us unbalanced.

Extract - 6: Lee is explaining as to how Henry focused on his activities when he has reached to top managerial level and as to how Henry could not digest the Lee's exposure to the outside and relevant influential circle.

Extract - 7: Lee explains the actions of Henry Ford to make Lee to quit from the Company.

Extract - 8: Lee explains as to how he had to leave Ford Motor Company.

The conclusive note on Lee's Episode:

Lee could have found fault at Henry Ford and Lee may be right in his thinking that hardworking and talent is to be rewarded. At the same time, there is nothing wrong on the part of the promoters of the Company or the majority to retain their power and say in the Company and it is very important. Henry Ford's action as explained by Lee Iaccoca is an example as to how the promoters in the Company or the majority should focus on their position constantly as otherwise, they may be thrown-out at one point of time.

Steve Jobs initial experience with Apple Computers:

Steve Jobs is known to everyone as the founder of Apple Computers. He has incorporated Apple Computers at 20 and then Apple has become a big company within 10 years. Steve Jobs has taken a guy to run the company with him as Steve felt that he is very talented. But, unfortunately, the generous step taken by Steve Jobs has proved to be disastrous and Steve Jobs was thrown out from the Company eventually.

This experience of Steve Jobs may justify the actions of Henry Ford when Lee Iacocca was vice-president and was working for sometime.

The statement of Steve Jobs from his commencement address to Stanford University in the year 2005 is extracted below which sums up his initial experience with Apple Computers.

"Started Apple in my parents grange when I was 20 and we worked hard and in ten years Apple had grown from just two of us in an grange into a 2 billion dollar company with over 4,000 employees. We have just released our finest creation Mac and Touch a year earlier and I just turned 30. Then, I got fired. How can you get fired from a Company you started? Well, as Apple grew, we hired someone who I thought was very talented to run the Company with me, and the for first year and so things went well. Then, the revisions for the future began to diverge and eventually we are falling-out. When we did our board of directors were sided with him. And so at 30 I was out and very publicly out. What had been the focus of my entire adult life has gone and it was devastating. I did not know what to do for a few months."
------- Part of the speech delivered by Steve Jobs to Stanford University in the year 2005.

Conclusive note on Steve Jobs experience:

Despite leaving the company at 30 as he was literally thrown-out, Steve could stay on and started two companies viz., Pixar Animations and NEXT. Eventually, Apple bought NEXT and Steve Jobs has returned to Apple Computers. Steve Jobs is fortunate to turn the clock back and it may not happen in many cases. Steve Jobs experience in leaving Apple at 30 abruptly, highlights the importance of concentrating on retaining the true voice in a Company when someone is in Majority or some one is the promoter who has done everything for the Company.

Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415837-61-72-84-92-94