When considering a company, the first question you need answered is “who controls it?” The second is “do you trust them?” Minority shareholders are just one of many company stakeholder groups (others include employees, the government, suppliers, bankers and major shareholders such as a founding family). While you should not, as a minority shareholder, expect priority over the other stakeholders, you should expect to be treated fairly. And this depends on whether you can trust whoever controls the company to act in a fair manner. The controlling party need not be a shareholder. In the case of electric utilities, the respective government can often exercise considerable control over tariffs. Electricity prices are a socially-sensitive issue which politicians may sometimes pander to at the expense of minority shareholders. But it is also true, more often than not, that the controlling party is a shareholder, usually the founding family or a conglomerate. It requires a certain amount of faith, but the best way to judge whether the controlling party will act fairly in the future is to see whether it has acted fairly in the past. Those that have a good track record of equitable treatment of minorities should be held in high regard. Until they slip up that is, though in my experience past behaviour is a pretty accurate predictor of future behaviour.
Hugh Young is managing director at Aberdeen Asset Management Asia.