Firms wary as investor activism gains traction (2024)

As per company disclosures, a sizeable number of minority shareholders across firms have voted against resolutions ranging from investments in subsidiary firms to the appointment of directors and fixing remuneration for executives and auditors.

While in most instances, the resolutions have been passed as majority shareholders, including promoters, have voted in favour, minority shareholders have chosen to register their protest by voting against the proposals.

It wasn’t always like this. In the past, retail shareholders often stayed away from voting while institutional shareholders often voted in line with promoters and management. This is slowly changing.

The recent annual general meeting (AGM) season that stretched through the summer months is a case in point.

Companies such as Adani Ports and Special Economic Zone Ltd, JM Financial Ltd, Shoppers Stop Ltd, IDFC Ltd, Bharat Forge Ltd, Tata Power Co. Ltd, Cummins India Ltd, Deepak Fertilisers and Petrochemicals Corp. Ltd and NIIT Technologies Ltd saw public shareholders opposing resolutions.

In the case of Adani Ports, 31.46% of public institutional shareholders voted against a resolution seeking an authorization for the board to decide on loans or investments up to ₹ 10,000 crore, over and above the stipulated limits.

Nearly 20% of the non-institutional shareholders also voted against the resolution that was ultimately passed.

A resolution seeking approval for material related-party transactions by the firm in 2014-15 also saw nearly 25% institutional shareholders and 20% of non-institutional investors opposing it.

The AGM was held on 11 August. Adani Ports did not respond to an email query sent on Thursday.

“Shareholders, especially institutional, are asserting their rights and showing their presence to the company by resisting on issues they are not comfortable with. These are the initial stages as participation by retail investors is yet to increase in the manner it has increased for institutional shareholders," says J.N. Gupta, managing director of corporate governance advisory SES Governance.

He said investors have realized they can make the board sit up and take notice by casting a dissenting vote.

According to data collated by SES Governance, nearly 24% of public shareholders of JM Financial voted against the resolutions linked to a related-party transaction with JM Financial Asset Management and JM Financial Credit Solutions at the company’s AGM held on 30 July.

In another instance, 13% of the public shareholders of IDFC opposed a resolution regarding the appointment and remuneration of an auditor, while 12% opposed the resolution regarding the appointment of a director at the AGM held on 30 July.

Both JM Financial and IDFC did not respond to email queries sent on Thursday seeking their views on minority shareholders opposing certain resolutions.

NIIT Technologies and Tata Power also saw shareholders oppose resolutions related to the appointment of a director and audited financial numbers, respectively. Both AGMs were held in the first week of August.

As in other cases, the resolutions were ultimately cleared by the majority.

NIIT Technologies and Tata Power did not respond to email queries.

Shriram Subramanian, managing director at InGovern, a Bengaluru-based corporate governance advisory firm, says that negative votes send a bad signal to the market, and promoters need to take them seriously since they would need to tap the markets for funding at regular intervals.

“It is good to see that investors have become more vigilant. Voting is a right and should be exercised with responsibility. More than the number of negative votes, what matters is the signal that goes in the market. If a well-known investor opposes a particular resolution, the whole market takes note of it. Promoters cannot take it lightly as they would have to come back to the same people for additional capital," says Subramanian.

The regulatory framework has also sought to empower minority shareholders.

Market regulator Securities and Exchange Board of India (Sebi) rules now require that all related-party transactions be approved by a majority of the minority shareholder.

Promoters are required to abstain from such voting.

At the AGM held on 31 July, 10.26% of the public shareholders of Shoppers Stop opposed a resolution seeking an approval of related-party transactions entered into by the company with its subsidiary, Hypercity Retail (India). Shoppers Stop did not respond to an email seeking details.

“Going ahead, we expect to see increased participation by both institutional and retail shareholders, and companies will be more careful when coming to shareholders with resolutions that may be against the interest of non-controlling shareholders for fear of defeat," says Gupta, a former executive director with Sebi.

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Published: 17 Aug 2015, 01:01 AM IST