Need more powers for small shareholders - The Financial Express 03/11/21, 4:51 AM

Need more powers for

small shareholders
Eicher-voting etc shows the power of their voice,
but regulation in India must learn from other
jurisdctions on empowering them

Despite challenges, 83 per cent of India's business leaders are confident

about leading a distributed workforce, when compared to 66 per cent of
leaders in the APAC region.

It is the season for shareholder activism. Never before probably have we

seen institutional shareholders assert themselves in the manner they
have this time around. To begin with, they voted overwhelmingly against
the re-election of UK Sinha as a board member of Vedanta Limited as
also against the company’s accounts. The proposals, of course, went

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Need more powers for small shareholders - The Financial Express 03/11/21, 4:51 AM

through because the promoters own a significant 65% stake in the

company.

But, thereafter, they managed to defeat a proposal by Lupin to grant six

million stock options to employees under an ESOP plan; in this instance,
the institutions held about 41% of the equity capital and nearly 79% voted
against the resolution.

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Last week, they decided Siddhartha Lal didn’t deserve to be re-

appointed managing director of Eicher Motors if he was going to be
compensated by an additional 10%. Lal has reinvented Eicher and taken it
to new heights and done much for the company’s market capitalisation;
so, they didn’t object to him being a director. But they felt, and rightly so,
a hike in his remuneration was not justified at a time when the median
increase in salaries was just 1%, and the company’s performance has
been less than ordinary. The resolution failed to go through.

In the case of JK Cement which wanted Articles 91, 101, and 108 of the
AoA to be amended, nearly 70% of the institutional votes went against
resolution, killing it. Across a host of other companies, though they failed
to defeat resolutions even though they voted in large numbers because
of their relatively small stakes. These include Pokarna, Venky’s, Balaji

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Need more powers for small shareholders - The Financial Express 03/11/21, 4:51 AM

Amines and SH Kelkar to name a few. Nonetheless, it is important they let

their voices be heard
The point, however, is that the negative votes are much like water off a
duck’s back.

Neither the companies nor the individuals involved seem repentant; no

one really comes across as a penitent supplicant. They may be annoyed
by the attitude of these institutional and small shareholders, but treat
these events as minor irritants, nothing more. Neither do compensation
committees and boards seem to learn from past experience. A few years
back, shareholders rejected the appointment of Neeraj Kanwar as
managing director of

Apollo Tyres following an indifferent performance by the company;

Kanwar was compelled to take a salary cut of around 30%. It was
understandable small shareholders were miffed the CEO was taking
home such a chunky increment when the company wasn’t doing so well.

It is not only about CEOs but also independent directors who take home
crores in fees and need to be held accountable for their actions. If ESG is
to see meaningful improvement, non-promoter shareholders need to pull
together; they need to help publicise the detailed research that proxy
advisory firms like IIAS and SES provide, so that everyone is well-
informed.

Most critically, however, SEBI and the ministry of corporate affairs must
stay abreast of regulatory changes in other nations and upgrade Indian
laws. Some jurisdictions—Sweden, Brazil, Italy, Turkey Mexico and Chile,
among others—provide for the effective selection of independent
directors by minority shareholders in some form or the other.

Perhaps we need to adopt some of this legislation. It might seem illogical,

or even preposterous, that small shareholders should have a
disproportionate say in whether a company should issue stock options.

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Need more powers for small shareholders - The Financial Express 03/11/21, 4:51 AM

But, where financial transactions are concerned, especially where the

auditors have commented or qualified them, promoters should be left out
of the voting. After all, if there has been no wrongdoing, they would have
nothing to fear.

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