Exercise of rights: it is a no on the part of the shareholders
With shareholders being more aware and exercising their rights guided by the proxy advisory firms, they rejected more than 72 corporate resolutions between March 2020 and September 2021.
Business consulting firms believe the trend is likely to continue in the future, with minority shareholders becoming increasingly aware of raising questions.
Of the 72 resolutions which were rejected, 34 resolutions concerned the appointment of directors, 13 resolutions concerned the remuneration of directors and 11 concerned transactions with related parties. Balance related to issues such as the extension of ESOPs to subsidiaries, the lifting of securities and the modification of the documentary charter.
Makarand Joshi, founding partner of MMJC & Associates, a Mumbai-based business consultancy firm, said low promoter turnout in Annual General Meeting (AGM) vote, insufficient effort or communication to convince investors the appointment of directors or their remuneration, and the recommendations of the voting consulting firms have played an important role in the rejection of resolutions over the past year.
“Going forward, narrowing the shareholding gap between promoters and institutional shareholders is likely to increase shareholder activism against proposed resolutions,” Joshi said.
Girish Vanvari, founder of Transaction Square, a tax regulation and business advisory firm, said shareholder activism was going to be a problem forever and likely to become more aggressive. “Only the right man for the job will be preferred and the days of eligibility are over,” Vanvari said.
It is possible that promoters seek to increase their participation in companies or participate actively in the voting process.
Proxy advisory firm, Institutional Investor Advisory Services (Iias), said last week that regulations needed to be reviewed over the voting threshold to be crossed.
Currently, related party transactions require a majority of minority shareholders to approve a resolution, and from the following calendar year, all independent directors will be appointed by special resolution. What about compensation paid to promoters? At present, these are ordinary resolutions and must be adopted by a simple majority. The question is whether they should continue as ordinary resolution? “Lots of other resolutions need a makeover. In addition, such a change will need to be paralleled with the proposed regulatory change from “promoter” to controlling shareholder, ”noted Iias.