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Shareholders have become more discerning when it comes to voting on company resolutions, a new report by proxy advisory firm IiAS said. Counting from January 2014, 66 resolutions (for companies in the IiAS coverage list) have been defeated by shareholders, which the firm attributed to enhanced powers of shareholders under the new governance codes, increasing institutional ownership and the advent of e-voting.
The analysis by Institutional Investor Advisory Services (IiAS) shows that multiple classes of resolutions are getting defeated but the most prominent ones are related-party transactions, director appointments, remuneration and stock option plans.
Institutional investors are driving this change. In companies where resolutions have been defeated, the median institutional shareholding is 28 per cent, as compared to the Nifty 500 median institutional shareholding of 22 per cent. Institutions are actively voting — the abstained votes for mutual funds and pension funds have dropped significantly to 11 per cent in FY17 from 24 per cent in FY14, the analysis showed. This is driven by the push by regulators towards a stewardship code and enhanced disclosures on voting patterns and rationale — SEBI did so in 2011, PFRDA in 2015 and IRDA earlier this year. IiAS added that participation by foreign investors continues to remain high with top FIIs exercising their full franchisee in all their investee companies. In 2014, shareholders jointly rejected 32 resolutions; this fell to nine in 2015 and 14 in 2016. In 2017 till date, 11 resolutions presented by corporate boards have been defeated.
No longer a quiet lot“Under these circumstances, boards need to be more mindful of their roles,” the report concluded. “They must present well thought-out proposals in shareholder notices with granular information and disclosures. They must engage with investors at general meetings and investor calls. Investors are no longer voting with their feet but rather sitting across the table, demanding change. Companies need to pay them heed,” the IiAS report said.
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