Shareholder Activism up among promoter group

 

This year could well be the tipping point of shareholder activism in India. In addition to individual investors donning the role of aggressive shareholders, members of promoter group are also dissenting against boards and management of their companies.

Interestingly, directorial appointments and remuneration were the most scrutinised proposals by investors this year. Also, the number of cases where shareholders dissented against the board and management was unprecedented. Notable instances where members of promoter group too protested are Tata Group and Infosys.

Investors’ scrutiny increased manifold on proposals tabled by India Inc with as many as 45 companies of the top 100 having at least one AGM proposal that got more than 20% dissenting votes, says a study titled ‘The India Proxy Season 2017′ by shareholder advisory firm InGovern.

The report says 10,972 resolutions were proposed during the proxy voting season (January to September 2017) by 1,502 listed companies — 9,889 resolutions tabled at AGMs, 755 through postal ballots, 268 at EGMs and 60 at court-convened meetings. Of these, 8,291 resolutions were classified as ordinary, while 2,681 were special resolutions.


Grant Thornton partner (India leadership team) Harish H V says, “It is important that shareholders be active just like we want active and knowledgeable voters in a democracy.”

Harish added, “This will keep managements on their toes and ensure that interests of public shareholders not in management are also heard. This can also result in the ability of shareholders to vote out inefficient or ineffective managements and we can expect as a next phase an active market for controls which will maximise shareholder value. Last year, we saw increased efforts by institutional investors to question incumbent managements and challenge resolutions. This resulted in some questionable resolutions being voted out. We hope to see more of this in the years ahead.”

Auditors are being rotated more frequently than before, the study says. The period of three years provided to companies to comply with auditor rotation ended in March 2017. As a result, auditors with over 10 years of tenure were replaced, but there has been no such effort for independent directors who have been on the board for over 10 years.
The usual route for activism is through shareholder proposals in general meetings, but this year it was carried out on multiple fronts. While institutional funds, Unifi Capital and Florintree Advisors submitted shareholder proposals, India Horizon Fund and IDBI Trusteeship chose the legal route to voice their grievances, and the non-controlling promoters of Infosys aired their grievances against the board through the media.
In half of the cases, public institutions as well as private funds donned the mantle of an activist shareholder. Also, due to the e-voting facility, the quantum of participation in voting has been more than previous years.
Increase in instances of such activism is a clear indicator that shareholders are gradually seeing themselves as owners, rather than being mere investors. This should act as a catalyst in improving corporate governance, transparency in disclosures and level of engagement with stakeholders across companies, the report adds.

 

Link: Times of India- November 29, 2017