“Shareholders veto reappointment of Siddhartha Lal, MD, Eicher Motors”
One would have been surprised to read this headline in the newspaper as the general perception is that shareholders had little to no say in the regular workings of publicly listed companies. But with growing instances of shareholders holding the management accountable to high standards of corporate governance, Eicher Motors is not a standalone case of shareholder activism, which is still finding early ground in India.
In corporate lingo, shareholding essentially translates to ownership. So, the more shares one owns, the greater their influence on the company’s workings. In most Indian companies, promoters continue to remain dominant shareholders and, hence, default decision-makers. However, the Companies Act empowers all shareholders, irrespective of their stake, to voice their opinion regarding the company’s workings.
A lot has also changed with the advent of e-voting, which negated the need for physical presence in the meeting and allowed everyone to cast their vote.
Data suggests that, in 2022, promoters held 50.45% of all shares in Nifty500 companies, while institutional investors held 28.42% of all shares. However, 83.57% of these shares exercised their vote, a marginal uptick from 82.26% in 2021.
Retail stakeholders, trusts etc. only held 21.14% shareholding. Out of this, only 29.01% of shares put in their vote, up from 26.31% in 2021. While the numbers remain low overall, the marginal rise can be attributed to the emergence of proxy advisory firms like SES or Stakeholders Empowerment Services, InGovern, and IIAS or Institutional Investor Advisory Services. These provide generally unaware, smaller shareholders with data and insights on the company’s corporate governance, which helps them cast an informed vote on resolutions.
When a company wants to propose a change, it does so by means of a resolution. This can either be an ordinary one, which needs a simple majority, or a special resolution, where 75% or more shareholders need to agree.
There’s another category, known as the majority of minority resolution, which requires the united approval of most minority shareholders, or those holding less than 50% of the company’s shares to go through. Their approvals are required for related party transactions, such as selling a part of the company for a lump sum, amongst others.
Most of the resolutions that emerged as standpoints of contention were related to ESOPs (employee stock ownership plans), director and management appointments, and their remuneration.
While shareholder activism may not be very prevalent in the country,it has certainly highlighted issues like arbitrary issuance of ESOPs at discount, disproportionate rise in incomes of top executives and other issues, which would otherwise have slipped away from sight.
This year, institutional investors in Havells Ltd. dissented over the remuneration given to the company’s chairman and MD, Anil Rai Gupta. Many proxy advisory firms, such as ISS (Institutional Shareholder Services), also recently objected to the induction of Anant Ambani to the board of Reliance.
CA Sanjay Garg says that retail investors are largely unaware and unconcerned about the day-to-day workings of a company. They generally care about the timely transfer of dividends and bonus shares. Grievances regarding these can be addressed via the investor’s grievance cell, which every company has. However, institutional investors have been increasingly gearing up, holding those in power responsible.
That is why enhanced participation of minority shareholders will result in bringing transparency to corporate governance and accountability.
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