When shareholder voting is on, many directors pull their candidature

Board directors are bowing out before they get voted in.
Board directors are bowing out before they get voted in.


  • Most of these opt-outs have happened at firms plagued with governance issues

Asian Paints Ltd's independent director Pallavi Shroff withdrew her candidature for a second term on the board while shareholders voted on the proposal, joining a long queue of individuals who agreed to join a company board, only to pull back at a late stage.

Shroff, managing partner of law firm Shardul Amarchand Mangaldas & Co., is the 25th director since January 2021 to withdraw candidature after agreeing initially, a Mint review of director appointments at 21 companies showed. These include Zee Entertainment Enterprises Ltd, Dish TV India Ltd, pharma firms Gland Pharma Ltd, Alkem Laboratories and Solara Active Pharma Sciences Ltd, and banks like Union Bank of India and Karnataka Bank.

Zee has seen three instances of directors opting out while Gland Pharma and IFGL Refractories Ltd, which provides refractories to steel plants, has witnessed two such occasions in the last three years.

A prospective director, or a director seeking reappointment, provides consent to the company board's nomination and remuneration committee, (NRC), which recommends the candidate to the board, and eventually seeks shareholders' approval. For this reason, a board member withdrawing at the voting stage is surprising.

Mint spoke to four executives, including a former board member, two investors and one corporate governance expert, who pointed out two likely reasons: Disapproval from proxy advisory firms, and a desire to avoid the embarassment of being rejected by investors. Shroff's candidature, for instance, had met with disapproval from several proxy advisors.

“Our firm view remains that directors should not be allowed to withdraw once the company sends a notice to shareholders seeking their appointment," said Amit Tandon, founder and managing director at Institutional Investor Advisory Services (IiAS), a proxy advisory firm.

A board member withdrawing makes the voting process infructuous, and a company does not disclose the voting results for the resolution, despite many investors making their choice.

“Typically, the management may have an indication of the outcome of the voting of the board member seeking appointment," said V. Balakrishnan, a former chief financial officer and board member at Infosys Ltd. “For enhancing corporate governance, Sebi should make it mandatory that all companies disclose the voting outcome of all such appointments, even if someone withdraws. Shareholders will then understand the genuineness of reasons given by directors who opt out, or if a candidate withdrawing was on account of avoiding the public embarrassment of a candidature getting defeated."

More than half of the candidates who withdrew cited “personal reasons", without specifying what transpired especially after they had given their nod only six weeks before the company started the process of seeking shareholder approval. Some like Shroff cited professional reasons. One independent director, Manish Chokhani, who withdrew his candidature as an independent director at Zee in September 2021 after shareholders completed the voting process, had said that he had stepped down “due to changed life circumstances and perspective post covid".

According to the four executives cited above, potential rejection by shareholders is a key reason.

In December last year, Zee's independent director Adesh Kumar Gupta withdrew citing personal reasons, just three days before the company's annual general meeting. Even though Zee did not disclose the voting outcome on Gupta’s reappointment, data compiled by proxy advisor IiAS showed that 48.46% of shareholders had rejected his candidature.

An appointment of a director, a special resolution, needs approval from 75% of shareholders.

“The most worrying issue is that it raises questions on the process of electronic voting, and if people, other a company secretary and an independent scrutinizer, are indeed privy to the voting results, then it’s time there is a scrutiny by the market regulator (Sebi)," said a Bengaluru-based investor, who owns shares in Zee.

On 17 January, Asian Paints informed shareholders that they could vote on the proposal to reappoint Shroff between 28 February and 28 March. But on 23 March, five days before voting was to end, Asian Paints informed exchanges that Shroff did not seek a second term on account of her law firm getting new projects, leading to “enhanced professional and time commitments".

Shroff’s reappointment would not have been easy since many large foreign investors have voted against her candidature, according to a Mint review of the votes. This was after two proxy advisory firms, IiAS and InGovern Research Services, recommended that investors reject her candidature.

"Since the board's overall independence level does not meet our guidelines, we are voting against all non-independent directors on the ballot, except the CEO. We are not supportive of non-independent directors sitting on key board committees. This director is overboarded," reasoned British Columbia Investment Management Corp., a Canadian fund that manages $200 billion in assets.

Both California Public Employees’ Retirement System (CalPERS), which has about $500 billion of assets under management (AUM), and New York Trust rejected Shroff’s reappointment.

"The nominee sits on boards at more than four public companies. The board is not majority independent. The nominee is non-independent and sits on a key committee. A vote AGAINST the following nominee is warranted because: - Pallavi Shroff is the managing partner of Shardul Amarchand Mangaldas & Co., Solicitors & Advocates, which renders professional services to the company," said Calvert Research and Management, part of Morgan Stanley Investment Management. “Such transactions may compromise director's ability to impartially and independently scrutinize board decisions."

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