I rate investors have thrown a metaphorical shoe at the senior management and board of Satyam Computer Services Ltd. And they were not able to duck as fast as US president George Bush did at a press conference in Iraq.

Illustration: Jayachandran / Mint

The ire is natural. A family that controls India’s fourth largest software services company thought it could use a slim 8.6% stake, worth $275 million on Wednesday morning, to spend $1.8 billion of reserves and fresh borrowings to bail out two sister companies in the realty and infrastructure businesses. It is time to ask Satyam chairman B. Ramalinga Raju to step down voluntarily (as we did in our front-page Quick Edit on Thursday) and sack the independent directors on the company board, who have been appointed to protect other shareholders against precisely such raids on their company.

The Satyam management now pretends to be shocked at the angry response and has quickly withdrawn the deal with the two Maytas firms. The episode shows how badly India needs activist investors.

India has impressive rules on corporate governance, which most public companies say they adhere to. Clause 49 of the listing agreement to our stock exchanges includes many best practices: Between a third and a half of directors should be independent; there are clear guidelines on what a board is supposed to do; the chief financial officer is held responsible for the quality of financial statements; there are provisions for audit and compensation committees.

Such governance norms are an important step ahead. But there has to be oversight to ensure that managements and promoter groups stick to the spirit of these norms as well. It is an open secret that many business families pack boards with cronies masquerading as independent directors. But the Satyam case shows that even top-notch professionals such as Vinod Dham and Krishna Palepu can fail.

That is why India needs more activist shareholders. The major financial institutions usually vote according to what the government tells them, though recent refusals to subscribe to rights issues of leveraged companies such as Tata Motors and Hindalco are welcome in this context. The culture of tough institutional investors and research analysts who do not pull punches will make it tough for company managements to take other shareholders for a ride—not just during extreme cases such as Satyam, but in more normal times as well.

Why does India not have activist investors? Tell us at views@livemint.com