Bringing gen-next to the board? LIC is watching

Despite its strong observations, though, LIC did not reject all but one resolution.
Despite its strong observations, though, LIC did not reject all but one resolution.

Summary

  • LIC expressed its unhappiness over 12 proposals pertaining to the appointment or reappointment of the next generation of founders in 11 promoter-led firms between January 2022 and 30 September 2023

BENGALURU : Founders of public companies naming their scions as senior executives or board members may find the going harder as the passing of baton comes under greater scrutiny from the world’s biggest public money managers, including Life Insurance Corp. of India (LIC), the country’s largest domestic institutional investor.

LIC expressed its unhappiness over 12 proposals pertaining to the appointment or reappointment of the next generation of founders in 11 promoter-led firms between January 2022 and 30 September 2023, according to a Mint review of LIC data on voting records.

 

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Satish Kumar/Mint

Despite its strong observations, though, LIC, which manages 47,43,389 crore ($569.3 billion) of assets, did not reject all but one resolution, thereby saving the promoters from embarrassment. For this reason, all 12 proposals secured majority approval.

Take, for example, LIC’s observations on the resolution seeking the reappointment of Sagar Adani at Adani Green Energy Ltd. Sagar Adani is the nephew of group founder and chairman Gautam Adani.

“With less than 10 years of post-qualification work experience, his experience is not enough to be an executive director on the board of a listed company," LIC reasoned when the proposal was put before shareholders to vote in July. “Remuneration not capped," LIC noted, even though it eventually decided not to vote on the proposal.

Twenty-two per cent of large investors voted against Sagar Adani’s re-appointment, according to voting records published on BSE. But a 56.26% promoter holding and the abstention of LIC, which owns 1.36% of the company, helped the resolution sail through with a 96% vote in favour.

Similarly, LIC made a rare rebuke on the reappointment of P. Sarath Chandra Reddy, the eldest son of P.V. Ramprasad Reddy, the co-founder of Aurobindo Pharma, the fifth-largest pharma company by sales.

“[The] Enforcement Directorate (ED) has a case against him," LIC reasoned when the resolution seeking re-appointment of Sarath Reddy was put before shareholders this August.

In November 2022, Sarath Reddy was named in an alleged corruption case over the award of licences to liquor stores in New Delhi and was arrested by the ED. In all, 77.5% of public institutions rejected the resolution. But a 51.83% promoter ownership and the abstention of LIC, which owns 5.43% in the firm, helped the proposal secure approval with a 73.2% vote in favour.

LIC made similar observations against the scions of Dilip Shanghvi at Sun Pharmaceutical Industries Ltd and Satyanarayana Chava of Laurus Labs Ltd this year, and the children of Hari Bangur at Shree Cement Ltd and Ajay Piramal at Piramal Enterprises Ltd last year.

Queries sent to an LIC spokesperson seeking comments remained unanswered.

“LIC is the largest domestic institutional investor and for this reason, how it is voting on resolutions is of importance to corporate India," said Amit Tandon, founder and managing director at Institutional Investor Advisory Services (IiAS), a proxy advisory firm. Tandon declined to comment on the disconnect between LIC’s rationale and its abstaining from voting on these resolutions.

Among various reasons cited by LIC while staying away from voting are: insufficient or unclear work experience, enforcement action, governance concerns, excess remuneration, absence of cap on commission, and the lack of disclosures on remuneration.

“The heartening thing to know is the rationale gives a peek into how LIC is thinking about these proposals. Agreed, it would have been perfect had LIC also walked the talk and exercised its vote and not abstained," said an executive at a Delhi-based alternative investment fund. “But one can argue that LIC is giving some time to management at each of the companies. Also, it will encourage other large private money managers to start exercising their voting rights to improve governance measures."

For now, LIC not exercising the vote is in contrast to how money managers such as sovereign wealth funds, pension funds and asset management firms have been nudging managements to focus on corporate governance.

BlackRock Inc., the world’s biggest money manager, which has assets under management (AUM) worth over $10 trillion , voted against the reappointment of Sagar Adani at Adani Green and Sarath Reddy at Aurobindo Pharma, according to filings reviewed by Mint. Vanguard, the world’s second-largest asset manager with over $7.5 trillion in AUM, also rejected the proposals at the two companies.

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