Shareholder activism on the wane

Fewer resolutions got opposed by institutional shareholders in 2016, with little success

After the initial spurt, activism of institutional shareholders seem to be moderating. While the number of resolutions they opposed fell for a second continuous year, the efforts have often been futile as promoters are able to carry home the resolutions with their strong holdings. An analysis of data provided by Prime Database of resolutions put up in 2,100 shareholder meets of 1,541 National Stock Exchange-listed companies showed there was significant opposition in less than 10 per cent of the cases.

Of the 6,678 resolutions between January and October 6, for which institutional voting details were available, 616 resolutions or 9.22 per cent saw more than 20 per cent of institutional shareholders voting against. Several resolutions for appointment of promoter family members saw heavy opposition from institutions. For example, the reappointment of Subhash Chandra as director of Zee Entertainment saw 77 per cent institutional votes opposing. Over 46 per cent of institutions in Hindalco opposed appointment of Rajashree Birla.

State-owned firms such as BHEL, Bharat Petroleum, NTPC, GAIL, Powergrid and Coal India also saw stiff resistance to board appointments, usually done by the government.

As many as 37 per cent of Reliance Industries institutional votes went against the appointment and remuneration of auditors. And, 22 per cent voted against Infosys' stock incentive plan. A similar number opposed remuneration of Siddhartha Lal, managing director of Eicher Motors. Of these 616 resolutions, 606 still got passed, mostly owing to high promoter holding. Only 10 resolutions got defeated.

Local institutions had started actively participating in voting process after the Securities and Exchange Board of India (Sebi) made it mandatory to disclose their voting details in portfolio companies a few years ago. However, the number of resolutions that saw stiff opposition shows a declining trend. In 2015, the number was 715 in the same period (January-October) and much higher at 971 in the same period in 2014. This year's number represents a fall of 13 per cent from last year and 36.5 per cent from 2014. In the first half of 2016, 40 domestic mutual funds, as a whole, voted in favour in 88 per cent of the cases, against in three per cent of the cases and abstained in nine per cent cases, according to Prime.

Analysts feel companies have become more sensitive to investor concerns than earlier, leading to improvement in quality of resolutions. Pranav Haldea, managing director, Prime Database, said: "This reflects a marginal improvement in the quality of resolutions being proposed at shareholder events. There has also been an increase in the participation of institutional investors, which is on account of the facility of e-voting being made mandatory a couple of years ago. In view of this, there has been far greater public scrutiny of the resolutions forcing the companies to propose only such resolutions which are more likely to pass."

Changes in the Companies Act and the Sebi Listing Obligations & Disclosure Requirements have also brought about a renewed focus on corporate governance.

Apart from those defeated by institutional activism, there were resolutions which were defeated by promoter shareholders and wider participation of public shareholders. Thus, in all, there were 30 resolutions which were completely voted against by shareholders at annual general meetings, extraordinary general meetings, postal ballots and court convened meetings held since January 2016. This was up from 23 in the same period last year and 27 in 2014.

Of these 30 resolutions, no resolution was re-proposed to be passed unlike previous years wherein a bulk of such resolutions were re-proposed to be passed. However, companies might re-propose these in the next two or three months.