Why do retail investors vote differently from institutions on key resolutions

Suresh P. Iyengar | | | Updated on: Oct 13, 2021

M Damodaran, former Chairman, SEBI | Photo Credit: SOMASHEKARA GRN

Investors now have more information with them than ever before: Damodaran

The increasing institutional shareholders activism seems to have no impact on retail investors decision even as the regulator SEBI intends the former to take a leaf out of the latters’ decisions.

In the case of Eicher Motors, institutional investors had voted against reappointment and salary hike of the Managing Director Siddhartha Lal but retail investors were in favour of the resolution to the extent of 99.96 per cent. While retail investors entirely approved the reappointment of Deepak Parekh as director on HDFC few years back, about 25 per cent of public institutions voted against the resolution.

Similarly, the recent Infosys resolution to hike the compensation of COO and Whole-time Director saw 75 per cent of public institutions support while 67 per cent of retail investors voted against it.

Following proxy voice

M Damodaran, Chairperson, Excellence Enablers and former Chairman, SEBI, UTI and IDBI, said that in more recent cases, it has been noticed that while there is no uniform pattern which is emerging, retail investors are generally in favour of the resolutions. The question which arises is whether public institutions are going almost entirely by the recommendations of proxy advisory firms, while the retail investors are acting on their own after seeing merit in the management proposals, he added.

The rise in shareholders activism can be attributed to the booming online forums where investment analysts are sharing insights and research into management performance and their decisions. Following this, investors are now demanding accountability rather than merely voting with their feet and dumping their shares in response to bad management decisions.

The amendment to the Companies Act, 2013 has also empowered shareholders to question managements on their decisions. In case the management fails to respond, the Act empowers investors to demand an extraordinary general meeting. Importantly, the appointment and removal of directors need to be passed through special resolution with 75 per cent of the votes cast from next January against the current practice of getting passing it through simple majority of over 50 per cent of the votes cast. Investors are also discounting reputations and past track records of individuals taking the mantle.

Abstention may be questioned

One disturbing feature which has been noticed is the abstention from voting on resolutions. While retail investors may not exercise their votes for a variety of reasons, there is no justification whatsoever for institutions to abstain from voting on proposals, said Damodaran.

“Soon, promoters will question the management of these institutions on their decision to go entirely on proxy advisory firms’ recommendation and who authorised it to abstain from voting on resolutions,” he added.

Published on October 12, 2021
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