Equity boom spurs shareholder activism, reshapes corporate boardrooms

Large investors now assert their right to have a say in investee companies, underscore analysts

Punit Goenka, the former director of Zee Entertainment Enterprises, is not the only one who lost his Board seat due to shareholders’ activism last week. In the recent past, institutional shareholders of several companies, including Nestle and Wipro, have pushed back against Board proposals by taking an aggressive stance while voting.

 

In May this year, shareholders of food major Nestle rejected the company’s resolution to raise the royalty payment to the parent firm with 57 per cent of non-promoter shareholders voting against the hike. Nestle had proposed to hike the royalty payment from 4.5 per cent to 5.25 per cent of turnover over the next five years beginning this year.

 

Similarly, in the same month, more than three-fourths of infotech major Wipro’s public shareholders voted against the proposal to pay Rs 35.15 crore of severance pay to former CEO Thierry Delaporte, according to voting records published on the BSE site. In September this year, a proposal by Lumax Auto Technologies, an auto parts firm, to pay commission at the rate of one per cent of net profits to non-executive directors did not get the requisite majority. In September, shareholders did not clear the appointment of four independent directors on the Board of Finolex Cables.

 

In the last 10 years, the growth of equity cult has been very rapid, leading to expectations of high standards of governance and tighter regulations. Large investors are now asserting their right to have a say in investee companies, analysts said.

 

“The regulations have played an important part in shareholder activism – a key one has been the e-voting mechanism, which has made it possible to voice views without the need to attend meetings physically. The Sebi (LODR) disclosures as well as several situations requiring ‘majority of minority’ votes (ie promoters cannot vote on certain resolutions like related party transactions or where schemes of arrangement would enhance promoter holding) have played an important part in providing shareholders with the ability to have a crucial say in certain matters,” said Ketan Dalal, MD of Katalyst Advisors.

 

“Shareholders are becoming more aware of their rights. Sebi has pushed mutual funds to vote and not abstain,” said Shriram Subramanian, founder and managing director (MD), InGovern, a proxy advisory firm.

 

In recent years, institutional investors have played a very important role in the capital market as they increased exposure to local companies.

“The level of institutional oversight, particularly with the focus of proxy advisors, has further made shareholder activism deeper and more intense,” Dalal said.

 

Besides, the quality of governance has improved significantly over the last decade or so, partly due to regulations, institutional holdings, shareholder activism, and media scrutiny, and partly due to the realisation that good governance has a direct positive impact on market cap, Dalal said.

 

“At the same time, complexities of business have also increased, as have the transactions or initiatives that can come under shareholders’ lens; some key ones are appointment or reappointment of directors, KMP remuneration, ESOP schemes, related party transactions and acquisitions/divestments/merger and demerger schemes,” he added.

 

Rising shareholder ire

 

Zee Entertainment Enterprises: Punit Goenka fails to get reappointment

 

Nestle: Shareholders reject higher royalty payment to parent 

 

Wipro: Shareholders reject severance pay to former CEO

 

Finolex Cables: Four independent directors fail to secure shareholders' approval

 

Lumax Auto Technologies: Shareholders reject commission to non-executive director