Being an Activist Shareholder

 

An institutional investor could take activist measures when it comes to better corporate governance at listed companies.

 

The motivation to being an activist could be many:

  • Demand better governance and management of the company
  • Protect rights of minority shareholders
  • Respond to specific proposals put up by management for shareholder votes

 

As an activist the institutional investor can take up the following actions:

  • Communicate with management and the Board of Directors
  • Speak with third parties regarding the companies
  • Make proposals to the company about possible changes to the capitalization, ownership structure or its operations
  • Seek representation on the Board
  • Nominate individuals for election to the boards of directors
  • Engage in election and proxy contests
  • Put forth shareholder proposals to be put to vote at meetings

 

 Shareholder Proposals and Actions:

  • The resolutions being tabled can be Management Proposals or Shareholders Proposals. In India, as per the SEBI mandate, all mutual funds need to report the voting details separately for the management proposals and the shareholders proposals.
  • Section 188 of Companies Act enables member’s resolution to introduce motions at a meeting. If members having 1/10th of the total voting rights of all members having the right to vote on a resolution or if 100 members having the right to vote and holding paid-up capital of Rs1,00,000 or more, require the company to do so, the company must give notice to its members to this effect.
  • The member proposing the resolution will have to bear the expenses in this regard and the requisition for the resolution, signed by all the proposing members will have to be deposited at the registered office at least 6 weeks before the meeting date.
  • The Board of Directors is obliged to convene an EGM within 21 days to be held within 45 days of the requisition.
  • Section235 of Companies Act allows for an investigation of the affairs of a company. However, either 200 shareholders or a minimum of 10% voting rights should initiate the investigation.