Raising their voice

Public shareholder activism, for long in sleep mode at India Inc, seems to be coming to life of late with quite a few listed companies meeting with unexpected resistance from their public shareholders on key decisions. The latest HDFC AGM (annual general meeting) saw unusual opposition to its Chairman Deepak Parekh being reappointed to the company’s board with over 24 per cent of its institutional shareholders voting against the move, resulting in the special resolution just about scraping through. Debt-laden Suzlon Energy’s proposal to raise ₹2,900 crore saw over 93 per cent of the non-institutional shareholders resist the plan, forcing it to put it on the back-burner. This May, institutional shareholders ousted the entire board of Fortis Healthcare after a contentious decision to accept a sub-optimal bid for selling off its hospital assets. These instances suggest that new regulatory provisions in the refurbished Companies Act 2013 and SEBI’s LOD Regulations are having the desired effect of allowing public shareholders to finally have their say in corporate decisions.

Despite these instances, shareholder activism still has a long way to go. For one, while public shareholders have begun to speak up against doubtful corporate actions, they often don’t succeed in marshalling enough votes to scuttle such moves. The sizeable stakes still held by promoters and the often-conflicting views of foreign portfolio investors and domestic institutions prevent public shareholders from presenting a unified front in many cases. In the HDFC case, for instance, domestic institutions didn’t see eye to eye with foreign funds on the question of whether Parekh could do justice to his responsibilities at HDFC while he held eight other board positions. Two, shareholder participation in AGMs and postal ballots is still far short of what it should be. While most retail investors seem to be loath to log their votes in postal ballots, domestic institutions such as LIC, private insurers and mutual funds seem to prefer quietly exiting a stock, to engaging in a face-off with a ‘friendly’ management. It is foreign institutions who have led most recent instances of activist voting behaviour. Three, while both institutions and retail shareholders seem to increasingly rely on proxy advisory firms to make up their minds on voting decisions, these advisors are exposed to ownership conflicts and vested interests too.

For the recent trend of shareholder activism to gain pace, SEBI must explore new ideas to improve retail shareholder participation in e-voting. A further dilution of promoter stakes in listed companies to improve public ownership can be considered. Both SEBI and IRDAI must also demand greater accountability from the institutions under their watch, for active participation in corporate governance decisions. It is also time to demand detailed public disclosures and disclaimers from proxy advisory firms on their credentials, ownership patterns and conflicts of interest on the recommendations they make.

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