The more I think about it, the less ethical it seems. Shareholders are the ones paying for this guarantee, while management (via performance fee) are the ones benefiting from it.
You are correct, but I would add a bit of precision. It's not management that benefits, its FFH that benefits via the performance fee. That's might be trite, but I make that point because it is important to recognize where Prem's financial interest resides. It resides in the performance of FFH shares, not FFH India.
I am certain that people are tired of me dredging up the ancient past, but this is nothing new. When FFH bought out ORH, we did not really have a fully independent management cadre or board of directors to ensure that ORH shareholders received full value in that buyback. Prem had access to a larger collection of ORH financial data than did minority shareholders, so we did not know at the time that he was effectively buying ORH at book value (although as Chairman of ORH, it is almost certain that Prem would have been aware of that). Okay, it mostly worked out. Most of us made good money on ORH, but I remain unconvinced that we received a fair price for our shares. The lesson here is that if there is a divergence between Prem's personal financial interest and your personal financial interest, you would be well advised to consider measures to ensure that your interests are well aligned with his.
Do I need to dredge up Abitibi Bowater? It's basically the same conclusion. Understand where Prem's financial interests reside!
SJ