Exercising rights: It’s a nay from shareholders

By: |
October 10, 2021 4:30 AM

As many as 72 corporate resolutions have been rejected since March ’20

"Going ahead, reduction in shareholding gap between promoters and institutional shareholders is likely to increase shareholders' activism against proposed resolutions," said Joshi. (Representative image)"Going ahead, reduction in shareholding gap between promoters and institutional shareholders is likely to increase shareholders' activism against proposed resolutions," said Joshi. (Representative image)

With shareholders getting more aware and exercising their rights guided by proxy advisory firms, more than 72 corporate resolutions were rejected by them between March 2020 and September 2021.

Corporate advisory firms believe the trend is likely to continue in future with minority shareholders becoming more aware in raising questions.

Of the 72 resolutions that were rejected, 34 resolutions related to directors’ appointments, 13 resolutions related to directors’ remuneration, and 11 were for related party transactions. Balance related to issues such as extension of ESOPs to subsidiary companies, raising of securities and change in document charter.

Makarand Joshi, founding partner of MMJC & Associates, a Mumbai-based corporate advisory firm, said lower participation by promoters during annual general meeting (AGM) voting, insufficient efforts or communication to convince investors about the appointment of directors or their remunerations, and negative recommendations by proxy advisory firms have played an important role in rejection of resolutions in the past year.

“Going ahead, reduction in shareholding gap between promoters and institutional shareholders is likely to increase shareholders’ activism against proposed resolutions,” said Joshi.

Girish Vanvari, founder of Transaction Square, a tax regulatory and business advisory firm, said the shareholder activism is going to be an issue forever and likely to get more aggressive. “Only the right man for the job will be preferred and the days of entitlement are over,” Vanvari said.

There is a possibility of promoters looking at increasing their stake in companies or participate actively in the voting process.

Proxy advisory firm, Institutional Investor Advisory Services (Iias) said last week that regulations need a revisit as to which voting threshold it should cross.

Currently, related party transactions need majority of minority shareholders to approve a resolution, and from the next calendar year, all independent directors will be appointed via a special resolution. What about compensation paid to promoters? Currently, these are ordinary resolutions and need a simple majority to carry. The question is should they continue as ordinary resolution? “Many other resolutions need a relook. Further, such change will need to be squared with the proposed shift in regulations, from ‘promoter’ to controlling shareholder,” Iias noted.

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