Adamjee Group initiated the legal battle in year 2002
to stop one of the largest shareholders of Adamjee Insurance Company (AIC),
Muslim Commercial Bank (MCB), from participating in the election of
directors. The election of directors was to be held at the Annual
General Meeting (AFM) for the approval of year 2001 annual accounts.
Adamjee group lost the legal battle and also failed in establishing the
fact that it had the majority stake in the company. A last minute
ditched effort was also made to defer election of directors.
According to the reports the focal point of heated
debate at the AGM held on May 29, 2004 was the huge losses posted for
the year 2001 and inability of the management to take action against
those who had caused huge losses in the Middle East operations of the
company. Not only the prudence of management was questioned but its
failure to take action against those caused millions of rupee losses was
also deplored. It was also alleged that there was something grossly
wrong in the risk management policies and claims approval system being
followed by the company.
After the heated debate on accounts a lot of time was
wasted on the issue of participation of MCB in the election of
directors. Despite the Supreme Court order some of the shareholders
raised the voice to stop MCB from participating in election of
directors. However, the chairman allowed MCB to take part in the
election of directors. The result was election of six candidates
supported by MCB, two members of Adamjee family and Mohammad Chaudhry,
who is also the Managing Directors of the company.
Some of the critics still prefer to call the change
in Board of Directors a 'hostile takeover' only because they don't look
at the real holding of Adamjee group, even less than 10%. The largest
percentage of shares (40%) is held by MCB followed by the individual
shareholders (33%) and financial institutions. According to an analyst,
"During the legal battle Adamjee group had ample time to accumulate
share of the company, which they failed to do. Therefore, only they
should be blamed for the slippage of the company from their control and
not the MCB".
However, another analyst terms the installation of
six MCB supported directors on the Board of Directors of AIC a dangerous
trend. He says, "Commercial banks have ample depositors' money at
their disposal. The attempt by MCB to install its nominees on the Board
of Directors of AIC will encourage the other banks to acquire majority
shares of good companies by utilising depositors' money. Therefore, to
discourage the trend, the regulators should have intervened, which they
didn't. It is true that the 'watch dogs' prefer to sleep but some times
they must wake up to stop creation of a precedence, having the potential
to become a norm".
Whatever has happened is now part of history. The
effort of all the stakeholders of AIC should be to further strengthen
the largest insurance company of Pakistan. Though, management of the
company claims that it is the best managed company of the sector, it is
also a fact that it suffers from some serious structural weaknesses. In
most of the business segments the company has been either posting
marginal profit or incurring losses. This trend has to be reversed.
Another weakness is that it draws bulk of its revenue from premium,
whereas it should have been drawing bulk of its income from the
It is also being suggested that since Adamjee group
do not own majority stake in the AIC its name should also be changed.
While MCB may not be keen in changing the name, at least for the time
being, it may have no other option but to change the name if Adamjee
family demands a royalty on continuing with the name. There is no such
precedence in Pakistan. The GoP nationalised the commercial banks in
seventies and most of the banks continued to work under the same names.
Despite privatisation of Muslim Commercial Bank, United Bank and Habib
Bank there was no demand from the previous owners for any royalty
payment. Therefore, the demand of Adamjee family does not carry any
weight. It will only be the discretion of MCB to either continue with
the same name or change it.
However, the change of Managing Director and some of
the members of the top management cannot be ruled out completely. The
probability of change is based on a number of factors that include
failure of top management to take action against those who were
responsible for the losses originating from business in the Middle East
and payment of huge claims without in-depth investigations. Above all
some of the top executives have crossed the age for retirement. Apart
from the fact that their faculties have gone weaker the company need
injection of fresh blood to maintain its edge over the other
The change in the composition of the Board of
Directors of AIC has opened the floodgates. The Takeover Law also
facilitates such moves. However, this puts great responsibility on the
shoulders of regulators to ensure that any one desirous of acquiring
majority shares in a company also comply with the laws in letter and
It is also important to point out that there is no
representation of minority shareholders on the Board of Directors. It is
the responsibility of the regulators to ensure proper representation of
minority shareholders on the Board of Directors of all the listed
companies. Therefore, it is suggested that total number of directors of
AIC should be increased from nine to ten to facilitate entry of the
representative of the minority shareholders holding one-third of total
shares of the company.