Democratising the voting process at AGMs — the way forward

The outcome of the recent AGM of Housing Development Finance Corporation (HDFC) has ruffled many feathers, particularly at India Inc. Nearly 23 per cent of the voting investors voted against the re-appointment of Deepak Parekh as a director on the HDFC board based on the advise of two US proxy advisory firms.

Two foreign proxy advisory firms — Glass Lewis & Co and Institutional Shareholder Services — had asked investors to vote against Parekh and two other board members — Bimal Jalan and Bansi Mehta — citing the number of directorships they held and the overall independence of HDFC’s board. While Parekh survived the votes against him, former RBI Governor Bimal Jalan and chartered accountant Bansi Mehta opted out of the race for re-election ahead of the event.

Uday Kotak’s argument

Critical of the proxy advisory firms’ recommendations, Chairman of Kotak Mahindra Bank Uday Kotak has sought the regulation of international proxy advisors by SEBI to avoid wilful attacks on well-managed firms such as HDFC. “We have seen the concentration of voting through global proxy advisory services, leading to concentration of voting power in the hands of a few global agencies,” Kotak had said.

Domestic proxy advisory firms, which are regulated by SEBI, are also for bringing these foreign entities under SEBI lens.

Need for answering queries

However, from the investors’ point of view, instead of being critical of the stance taken by proxy advisory firms, be it domestic or foreign, it would be better if companies took serious note of the questions they raise. Let India Inc respect the views aired by the advisory firms or any other shareholders.

Corporates should pro-actively welcome all the comments and queries raised by shareholders ahead of the crucial AGM voting with a cut-off date. This will give a chance for promoters/directors to answer all the queries raised by the shareholders, and clear the air on misconceptions, if any.

Companies can give a detailed point-by-point reply or even a PowerPoint presentation to all the queries raised by these firms ahead of the voting, which can be shared with the exchanges.

The Securities and Exchange Board of India can also help on this issue with necessary guidelines for all-round healthy participation in debates on governance. This will ensure that all investors are well-informed on the issues concerning the company and have clarity ahead of the voting.