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Shareholder activism puts focus on governance in companies


(This story originally appeared in on Oct 06, 2021)

MUMBAI: With governance in sharp focus at India Inc, corporate boards and top management may find it tougher to push their agenda if not aligned with wider interests of all shareholders. Empowered investors are increasingly voicing concerns on a spate of controversial issues, ranging from compensation, appointments and related party transactions, ending the era when AGMs were considered just a regulatory tick-box item, and most resolutions sailed through.

Recently, Zee Entertainment has been making headlines due to its intense boardroom tussle with its institutional investors seeking the ouster of the company’s CEO & MD Punit Goenka. In August,

MD Siddhartha Lal’s reappointment was shot down over a hike in compensation at the AGM. It was cleared by the company’s board after a pay revision capped it at 1.5%, as against the higher limit at 3% of its profits, for which shareholder approval will be taken. While in July, there was shareholder pushback on the remuneration of MD Pawan Munjal, with an ESOP (employee stock option plan) resolution getting defeated. The former proposal was, however, approved. Similarly, companies across sectors, including Vedanta and Lupin, faced shareholders’ ire over the appointment of directors, and grant of ESOPs, respectively. Also, in August, an ESOP resolution at V-Mart Retail was defeated, and so was the alteration to the articles of Burger King, pertaining to promoter’s nomination rights to appoint directors on the board.

Balaji Telefilms resolutions for the approval of remuneration of MD Shobha Kapoor and joint MD Ekta Kapoor also failed to pass muster at the AGM in September.



Typically, resolutions do not get the green light in 20-25 companies of the BSE 500 every year. The figure is up this year with several prominent names, industry watchers said. KPMG India partner Sai Venkateshwaran said, “The uptrend is due to a combination of factors, whether it be more active institutional investors, empowered with better information to ask the tough questions, or the current economic environment and related uncertainties. Institutional investors, including mutual funds, pension funds and insurers, have also become more vocal in voicing concerns, and the regulatory mandate on the implementation of the Stewardship Code by Sebi, PFRDA and IRDA seems to be having a positive impact.”

Under the code, they are required to have a clear policy on voting and disclose the voting activity, in addition to their role in engaging with, and monitoring their investee companies. The code also requires them to be willing to act collectively or collaborate with other investors where appropriate, which would also result in collective actions by groups of investors, whenever required.

Institutional investors also have access to researched voting recommendations put out by proxy advisory firms, which enable them to take more informed calls, experts said. “The resolutions we have seen getting shot down by investors over the last two years are across categories — compensation, appointment, related party transactions, change in company’s articles. It is an indication that investors are looking at companies in a holistic manner and not focussing on just one aspect of the business. This year what has changed is that many high profile companies have come under the investors lens,’’ said Amit Tandon, founder and MD at IiAS, a proxy advisory firm.

Further, from shareholders’ standpoint, there is an expectation that compensation to KMP (key managerial personnel) and promoters, should be in sync with the performance of the company. While there has been a growing demand to link variable pay with the company’s performance, these calls get accentuated in an economic environment that’s showing either degrowth or slow growth in companies.

“Increasingly, it is evident that promoters may no longer find it easy to get resolutions passed through at AGMs, etc, especially when the minority shareholder votes are more relevant. Even in instances when the resolution is approved, but a vast majority of the institutions have voted against it, it sends a signal to markets on investor sentiment, and is a soft indicator to boards to sit back and rethink some of those decisions,” Venkateshwaran added.

With ESG (environmental, social and governance) issues taking centre stage at global companies, governance would be a key framework to focus on for India Inc to manage both performance as well as goodwill.



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