2017: The year of the minority shareholder
The year 2017 will be remembered as the one in which minority shareholders flexed their muscle. The year saw a distinct increase in shareholder activism as they shot down board proposals, sought to appoint their own board representatives, and openly voiced their concerns against management, according to proxy advisory firms.
Shareholder fights in two of India’s biggest firms—Tata Sons Ltd and Infosys Ltd—prompted the Securities and Exchange Board of India (Sebi) to constitute a panel to take a re-look at governance norms in Indian companies.
In as many as 45 companies out of the top 100 by market capitalisation, at least one annual general meeting proposal got more than 20% dissenting votes, says a report by Ingovern Research Services Pvt. Ltd.
According to a report by Institutional Investors Advisory Services (IIAS), 66 proposals by Nifty 500 companies were defeated by shareholders since the provisions of the Companies Act 2013 were implemented. Out of them, 11 were defeated in 2017 till November.
“We term 2017 as the tipping point of shareholder activism in India. The number of cases where shareholders dissented against the board and management was unprecedented, when compared with previous years. The year even included cases where members of promoter groups dissented against the Board and functioning of the companies,” said Shriram Subramanian, founder of Ingovern.
Institutional investors such as Unifi Capital and Florintree Advisors brought shareholder proposals to the board and, IDBI Trusteeship and India Horizon Fund chose the legal route to voice their grievances.
JN Gupta, founder and joint managing director of Stakeholder Empowerment Services (SES), says that while there have been shareholder proposals exerting their rights these were mostly individual fights. “The most important cases of shareholders fighting for their rights was in the case of Raymond, Tata Sons and Alembic. But to my mind barring Raymond, most of these fights seem more for individual rights. We are yet to see a proposal which considers the rights of all shareholders and not just their individual cases,” said Gupta.
In the case of Raymond, the company proposed to sell one of its prime properties to its chairman and some of his relatives at a price which was lower than a tenth of the market value, prompting the management to advise shareholders to vote against the proposal. The resolution failed.
“What we have seen at PTC India and Alembic is that shareholders are asking for certain action and change as opposed to reacting to what has been proposed by the company management. These are early signs of investors stirring. They day will soon come, when some will expect to sit across management and discuss issues as equals,” said Amit Tandon, chief executive officer and managing director, IIAS.
In August, Alembic Pharmaceuticals Ltd received a proposal from a group of small shareholders and portfolio manager Unifi Capital to appoint a small shareholder director. The proposal was first of its kind in India. The proposal was, however, defeated during the AGM as it did not secure the required number of votes.
Another proposal in the same month was in MRO-TEK Realty Ltd. The company, on the requisition of a public shareholder, called for a postal ballot for the appointment of the public shareholder to the board as a non-executive director. While the proposal received support from 83.79% voting public shareholders, it eventually failed to pass as the promoters voted against it and restricted it from getting a simple majority vote.
PTC India Ltd on 25 September, at its annual general meeting (AGM), put up a shareholder proposal by Florintree Advisors Pvt. Ltd to appoint their representative on the board as a director. The proposal was defeated.
In one case, the shareholder decided to take the company to the National Company Law Tribunal. Religare Enterprises was facing two lawsuits filed by two investors in September. While one of these suits was filed by IDBI Trusteeship Services Ltd in the Bombay high court, the other was by its shareholder India Horizon Fund Ltd in the New Delhi bench of NCLT. Both the suits were against a contentious proposal by the company for investment of Rs500 crore in a loss-making 100% subsidiary, Religare Capital Markets Ltd, and subsequent writing off of the amount.
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