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Eicher board playing a fraud on shareholders and corporate democracy: TV Mohandas Pai


Siddharth Lal’s appointment at a higher salary in defiance of shareholders’ wish is a very big test case and I hope the board of directors think about all these issues again and do not try to overwrite the views of the shareholders by going for a postal ballot, says TV Mohandas Pai, Chairman, Aarin Capital Partners.


Are you welcoming this shareholder activism we are seeing today? Do you think it is a good thing to keep promoters and management on their toes or do you think it does not really add value?
I have welcomed shareholder activism for more than 35 years. I was sort of a shareholder activist in the 1980s. We used to go to AGMs just to make sure that they are on their toes and I think shareholder activism is required for the very important reason that shareholders are the owners of the corporation. They appoint their fiduciary agents and directors to work on their behalf and they must express their views.

Sebi has now come out with the regulation which will make sure that their voice can be heard. For a very long time, any resolution put up by people owning more than 55-60%, had a foregone conclusion because they had majority voting rights. The Sebi step will make sure that related party transactions or any benefits happening to people who have a controlling interest is not decided by them.

Now we are seeing an increase in shareholder activism primarily because people feel that their voices will be heard and of course the institutions have been doing it for some time now. Sebi has also imposed rules which make the mutual funds do more and the recent activism in was a very good thing because in the Covid era, a lot of people have undergone a great deal of pain. Many people have been laid off across India. I do not know about Eicher, but giving a 10% salary hike to the MD at a time when the corporation has suffered sends a very wrong message. It is a very wrong message to others that performance and competition do not matter. So I welcome shareholder activism. We need much more shareholder activism in this country.

Will companies be able to ignore beyond a point or will they find a middle path? Let us look at what happened in the Siddhartha Lal – Eicher case. Of course, at first the shareholders voted against the increment, but a week later, the board of directors reappointed Siddhartha Lal and decided to cap his compensation to 1.5% of total profits as opposed to 3% of the bottom line. But they justified the hike saying that the median that shareholders were looking at was incorrect. So they stood their ground and they made a little bit of a tweak to keep shareholders happy. and now they have asked for their views on postal ballots. It is not as if teh management is bending over backwards to listen to shareholders. Isn’t it?
My personal view is they are playing a fraud on the shareholders and corporate democracy and I will tell you why. The directors proposed a resolution, the shareholders voted it out. Now under what means and what ethics will you say they are going to reappoint the person at a slightly tweaked salary? If they want to reappoint, they can recommend and send the tweaked salary back to shareholders and let them appoint again.

The reappointment should be from the date the shareholders have given approval. But if he is reappointed and takes charge right now and then they go to shareholders who say no, what happens then? These are lacunae in the law. I hope the MCA and Sebi will step in to make sure that this is addressed. If the shareholders reject it, they must propose again and have a similar meeting with e-voting and not postal ballots because postal ballots could have leakages.

I think they should go back for e-voting and not have the appointment take effect till the shareholders have reconsidered the resolution again. The board should consider this very well. They are appointed by the shareholders, not the promoters. They owe their allegiance to their shareholders as they are the fiduciary agents of the shareholders and not the promoters.

It’s true the promoter is also a shareholder but in cases where anything is for the benefit of the shareholder, they must make sure they have an arm’s length and they do not do anything in law or in spirit which will reduce the faith the shareholders have in them as independent agents now. I think this is a very big test case and I do hope the board of directors think about all these issues again and do not try to overwrite the views of the shareholders by saying that now we will go to postal ballot.



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