In Focus: Reliance Industries the latest target of shareholder activism?

Yasir Al-Rumayyan, the chairman of Saudi oil producer Aramco and the Governor of that country’s sovereign wealth fund, was appointed an independent director on the board of Reliance Industries on July 19 for a period of three years. The appointment has now come up for shareholder vote and the voting process will end on October 19.

Based on the recommendations of influential American proxy advisory company Glass Lewis, the California State Teachers Retirement System (CALSTRS) has decided to vote against Al-Rumayyan’s appointment. 

CalSTRS is the largest educator-only pension fund in the world, and the second-largest pension fund in the US, with about $318.4 billion worth of assets under management. 

As of June last year, CALSTRS held 5.3 million fully and partly paid shares of Reliance. This holding is valued at $179 million today.

The fund has cited potential conflict of interest, as Reliance plans to sell a 20% stake in its oil-to-chemicals business for $15 billion to Aramco, where Al-Rumayyan is the chairman. The deal was supposed to close by March 2020 but it got delayed. It is in its final stages at present. Given his connection with the Saudi government and the proposed business relationship with Reliance, proxy advisors Glass Lewis said it did not consider Al-Rumayyan as being independent at this time.  

In fact, it is not just CALSTRS which is opposed to the appointment. The Florida State Board of Administration, which manages $245 billion, is also against it. 

Further, Saudi sovereign wealth fund headed by Al-Rumayyan has already invested $1.3 billion in Reliance Retail Ventures and $1.49 billion in Jio Platforms. Reliance Retail Ventures is a Reliance Industries subsidiary that owns the group’s retail businesses, while Jio Platforms is Reliance’s digital services unit.

In a communication to proxy advisory firms, Reliance strongly defended its move, saying Al-Rumayyan’s appointment had no connection with its proposed deal with Aramco. Further, the O2C business was being spun off into a subsidiary which might have nominees from Aramco. Reliance also said its Human Resources Nomination and Remuneration Committee, which had four independent directors in its total strength of five, unanimously recommended his appointment, given his versatile experience.

The Mukesh Ambani-led company has so far not addressed the concerns around Al-Rumayyan’s connection with the Public Investment Fund, which has investments in Reliance’s subsidiaries.

Now the question that remains is whether the investors will be satisfied with Reliance’s justification, or will they force India’s most valuable company to reverse the appointment of Al-Rumayyan. Let’s wait and see.