CIRCUIT BREAKER. Time to reboot company AGMs

Until recently, Annual General Meetings (AGMs) of Indian companies were frustrating affairs for those keen to see shareholder democracy in action.

AGMs usually began with shareholders thronging the snack counters at the venue, with attendance thinning out the moment official proceedings began. Serious investors who sat through them, were treated to lackeys singing long paeans to the management or predictable questions about the next bonus issue.

But the last couple of AGM seasons for India Inc have turned out to be lively affairs, with some shareholders raising their voice on pertinent governance issues.

Speaking up

The AGM of Infosys Technologies this June stretched out into a three-hour affair after many shareholders grilled the management on the Panaya sell-off, its loss-making subsidiaries and CEO changes. The July AGM of Kesoram Industries saw a minority shareholder, Janardan Kothari, present an in-depth financial investigation into its slump sale of manufacturing assets to related parties.

The recent AGM of Larsen & Toubro saw an employee-shareholder protest a decision to set up a cancer hospital on company property as a memorial to the Chairman’s relative.

Lest you dismiss these as one-off instances, voting patterns at Indian AGMs show clear signs of retail investors taking a more active role in corporate affairs. Ever since the Companies Act 2013 made it mandatory for widely-held companies (more than a 1,000 shareholders) to offer electronic voting facilities as an alternative to postal ballots, retail investors have actively used these votes to make their voice heard at AGMs.

This year, debt-heavy Suzlon Energy saw its special resolution for new fund-raising being voted out by individual shareholders.

InGovern Services, a proxy advisory firm, noted that 2017 was a ‘tipping point’ for shareholder activism, with as many as 45 companies out of the top 100 companies facing 20 per cent dissenting votes on at least one AGM proposal.

Archaic format

Unfortunately, even as retail shareholders are showing a lively interest in corporate governance, the outdated format for the conduct of AGMs in India is actively impeding their efforts at securing justice. Most Indian companies use only a physical format for conducting AGMs.

The in-person meeting format suffers from obvious shortcomings. One, while individual shareholders are free to raise uncomfortable questions at the AGM, company officials are wont to ignore them or even to evict ‘trouble-making’ shareholders.

It was only after Kothari’s speech was widely shared on Twitter, reported in Moneylife and caught the attention of the stock exchanges, that Kesoram Industries came up with a detailed explanation of its related-party deals. L&T’s board called in security marshals to evict protesting shareholders from its recent AGM.

Two, company AGMs are closed-door affairs. Therefore, shareholders who aren’t physically present at the meeting have no means of knowing what transpired.

Three, smart companies deploy other weapons to thin out AGM attendance too. They hold AGMs in god-forsaken locations, choose inconvenient times during a working day, or bunch up meetings at the nth hour so that shareholders are forced to skip them. Last year, over 2,200 companies bunched up their AGMs in the last week of September.

But even without such skulduggery, it is hard to imagine any investor with a full-time career taking time off from work criss-crossing the country attending the AGMs of all his portfolio companies.

Low participation

All this ensures only a fraction of India’s retail shareholders actually sit in on company AGMs. Even for a company like Reliance Industries that hosts a shareholder jamboree, only 1,140 of the 22.2 lakh public shareholders attended the 2018 AGM. L&T saw just 526 of its 9.7 lakh shareholders turn up at its general meeting. HDFC saw 246 of its 2.6 lakh public investors attend its AGM.

This is quite unfair because, while institutional shareholders get multiple opportunities to meet the management and grill them on quarterly conference calls, AGMs offer the only opportunity for individual investors to interact with the management.

Going virtual

Therefore, as SEBI and the Ministry of Corporate Affairs work overtime on new laws to give public shareholders a greater say in governance issues, they need to seriously relook the archaic physical format for conducting meetings.

Prompted by the thinning attendance at AGMs and a globally dispersed shareholding, regulators in developed markets such as the US, the UK and Canada have been permitting companies to host virtual AGMs in the last few years. In the US, over 200 companies, including Ford, HP and Paypal, conducted virtual AGMs last year.

Virtual or electronic AGMs usually entail a combination of a webcast where the management makes a business presentation, and an open-house session where shareholders call in with their questions.

Some of the marquee names in the market already webcast their AGMs live. These companies will only need to add on a facility for live shareholder interactions, to go virtual.

Given the limited digital penetration and bandwidth problems in India, shifting to electronic-only AGMs may not be desirable. But companies can certainly be asked to host hybrid AGMs, so that shareholders who cannot travel to the physical location can go online to view the meeting and pose questions.

The division of questions between shareholders who are present at the venue, and those viewing it online can be handled through breakout sessions. If the questions prove too numerous, an independent moderator can be roped in to filter the questions. In fact, even without any regulatory diktat, Infosys already ran a very close approximation of such a hybrid AGM this year.

The benefits of companies offering a virtual, interactive leg to their AGMs can be many. With shareholders able to tune in remotely, they can save time and costs, and participate in multiple AGMs. Small shareholders need not be overawed by the company bigwigs at a grand venue while posing their queries.

With a live broadcast, companies would be wary of skipping shareholder queries or using strongarm tactics against them, while this would also rein-in unruly shareholders. The deterrent effect would be even stronger, if SEBI sought regulatory powers to tune in to any company AGM at will.

It is true that hosting these hybrid AGMs will be more expensive than organising the samosa-and-chai affairs that currently pass for shareholder meetings in India. But then, the costs may be worthwhile in the long run if they help shareholder democracy truly take wing.

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