‘Yes’ no more a default voting option, reveals IiAS study

Shareholders need a compelling reason to support a promoter’s resolution, and voting “yes” is not the default option any more, according to an analysis of voting behaviour by proxy advisory IiAS. The report is based on the recent shareholder meetings of Tata group companies.

On average, Institutional Investor Advisory Services (IiAS) found that Nifty 50 companies have seen about 63 per cent of non-promoter votes being cast in 2016. But, for the resolutions presented by the Tata companies in their EGMs, voting percentages were lower than average.

While the default is no longer yes, several institutional shareholders abstained from voting in the Tata resolutions, especially in the more contentious decisions regarding removal of Cyrus Mistry (in TCS) and Nusli Wadia as director. “This could well mean that neither side — Tata Sons, nor the director being removed — could provide a compelling argument to investors. While abstaining results in a tacit support to the controlling shareholders — the voting power of the shares increases — it also signals investors’ unease with the resolution,” IiAS concluded. Also, IiAS believes that investors now look to independent directors for guidance and want to keep the outsider’s view available.

“Even as investors questioned who exactly an independent director serves, they were not willing to see one removed: the resolution to remove Nusli Wadia had investors rooting for him,” IiAS said in the report. If the promoter’s votes are excluded, in two of the three companies, investors voted for Nusli Wadia to continue.

This behaviour, the proxy advisory said, “...should embolden independent directors. The Nusli Wadia voting pattern shows that removal of independent directors by the principal shareholder is contentious. Investors value their existence on the board and them holding their voice will have long-term consequences for Indian boards and governance of companies.”

Lastly, the report says that companies are judged on a daily basis, and promoters cannot afford to rest on their laurels, as seen from the recent shareholder meetings following Cyrus Mistry’s ouster as Chairman of Tata Sons. “For the Tatas, a century of building trust served limited purpose when it came to the vote. The vote against (a resolution) — excluding promoters (shareholding) — crossed the half-way mark for two resolutions analysed.”

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