After loosing the legal battle Adamjee Group also failed to maintain its majority on the Board


June 07 - 13, 2004



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 investment portfolio.

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 competitors.

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 spirit.

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.