Need more powers for small shareholders

By: |
August 24, 2021 4:40 AM

Eicher-voting etc shows the power of their voice, but regulation in India must learn from other jurisdctions on empowering them

Governance is about equity, balance and fairness, and the gatekeepers need to hold themselves demonstrably independent and uphold their moral compass.Governance is about equity, balance and fairness, and the gatekeepers need to hold themselves demonstrably independent and uphold their moral compass.

It is the season for shareholder activism. Never before probably have we seen institutional shareholders assert themselves in the manner they have this time around. To begin with, they voted overwhelmingly against the re-election of UK Sinha as a board member of Vedanta Limited as also against the company’s accounts. The proposals, of course, went through because the promoters own a significant 65% stake in the company.

But, thereafter, they managed to defeat a proposal by Lupin to grant six million stock options to employees under an ESOP plan; in this instance, the institutions held about 41% of the equity capital and nearly 79% voted against the resolution.

Last week, they decided Siddhartha Lal didn’t deserve to be re-appointed managing director of Eicher Motors if he was going to be compensated by an additional 10%. Lal has reinvented Eicher and taken it to new heights and done much for the company’s market capitalisation; so, they didn’t object to him being a director. But they felt, and rightly so, a hike in his remuneration was not justified at a time when the median increase in salaries was just 1%, and the company’s performance has been less than ordinary. The resolution failed to go through.

In the case of JK Cement which wanted Articles 91, 101, and 108 of the AoA to be amended, nearly 70% of the institutional votes went against resolution, killing it. Across a host of other companies, though they failed to defeat resolutions even though they voted in large numbers because of their relatively small stakes. These include Pokarna, Venky’s, Balaji Amines and SH Kelkar to name a few. Nonetheless, it is important they let their voices be heard
The point, however, is that the negative votes are much like water off a duck’s back.

Neither the companies nor the individuals involved seem repentant; no one really comes across as a penitent supplicant. They may be annoyed by the attitude of these institutional and small shareholders, but treat these events as minor irritants, nothing more. Neither do compensation committees and boards seem to learn from past experience. A few years back, shareholders rejected the appointment of Neeraj Kanwar as managing director of

Apollo Tyres following an indifferent performance by the company; Kanwar was compelled to take a salary cut of around 30%. It was understandable small shareholders were miffed the CEO was taking home such a chunky increment when the company wasn’t doing so well.

It is not only about CEOs but also independent directors who take home crores in fees and need to be held accountable for their actions. If ESG is to see meaningful improvement, non-promoter shareholders need to pull together; they need to help publicise the detailed research that proxy advisory firms like IIAS and SES provide, so that everyone is well-informed.

Most critically, however, SEBI and the ministry of corporate affairs must stay abreast of regulatory changes in other nations and upgrade Indian laws. Some jurisdictions—Sweden, Brazil, Italy, Turkey Mexico and Chile, among others—provide for the effective selection of independent directors by minority shareholders in some form or the other.

Perhaps we need to adopt some of this legislation. It might seem illogical, or even preposterous, that small shareholders should have a disproportionate say in whether a company should issue stock options. But, where financial transactions are concerned, especially where the auditors have commented or qualified them, promoters should be left out of the voting. After all, if there has been no wrongdoing, they would have nothing to fear.

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