Shareholder activism. How shareholder activism has hit a high in India

Right from rejecting salary hikes for managing directors to striking down promoters’ plans to delist their companies, shareholder activism has never been as robust.

Even as promoters move to reward top honchos with hefty pay rises for steering their companies through the Covid crisis, investors want the bosses to also moderate their expectations in case of a disappointing performance.

For instance, shareholders of Eicher Motors, makers of the iconic Royal Enfield motorcycle, rejected the special resolution to reappoint Siddhartha Lal as Managing Director with a huge salary hike. Never mind that not long back, they had touted Lal as the turnaround man of Royal Enfield brand.

Makarand Joshi, founding partner, MMJC and Associates LLP, says Eicher Motors investors had no problem with Lal’s reappointment, but did not approve the resolution on salary hike, indicating a vibrant shareholder activism taking shape in India.

Wake-up call

It is a wake-up call for board members and C-suite executives to effectively play the role of trusteeship and avoid extending unreasonable financial support to group companies, he added.

Nevertheless, Eicher Motors reappointed Lal as Managing Director with a maximum salary cap of 1.5 per cent of profit subject to postal ballot approval by shareholders.

Last fiscal, Lal had drawn ₹21.12 crore as salary, including commission and perquisites, while Vinod K Dasari, who stepped down as Chief Executive Officer of Royal Enfield and Executive Director of Eicher Motors from August 13, 2021, took home ₹25.37 crore without a share in profits.

Justifying Lal’s reappointment, S Sandilya, Chairman, Eicher Motors, said that when Lal took over as CEO of Royal Enfield in 2000, the division was making huge losses and was slated for closure. He had indeed turned around the brand. But the pandemic played spoilsport, and motorcycle maker’s profit dipped 30 per cent to ₹1,330 crore last fiscal.

Good for retail investors

At a recent summit, SEBI chairman Ajay Tyagi had said that shareholder activism is not bad as long as it protects the interest of retail investors.

Allcargo Logistics had to drop the plan to delist after shareholders resisted the proposal tooth and nail. In August last year, promoters of Allcargo Logistics felt it would be difficult to raise growth capital without going private. After shareholders’ resistance, the promoters withdrew their plan.

While shareholders flexing muscles is good to an extent, any delay in taking the right decision can lead to a serious erosion in value and job losses.

Unlike others, IT giant Wipro managed to overcome shareholder activism by reappointing Patrick Ennis and Patrick Dupuis as independent directors despite proxy advisors asking shareholders to vote against the proposal.

But Balaji Telefilms was not as lucky as investors rejected the proposed salary hike of Ekta Kapoor (Joint Managing Director) and her mother Shobha (Managing Director) and capped the commission in absolute amount.

Mohit Saraf, Founder and Managing Partner, Saraf & Partners, said the country has seen some sparkling success stories in shareholder activism with the regulatory architecture designed to ensure certain checks and balances on the powers of the promoters.

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