Proxy advisory firm Institutional Investor Advisory Services (IiAS) has asked shareholders of Zee Entertainment, not to re-appoint independent directors, Ashok Kurien and Manish Chokhani, on the company's board.
Raising concerns of corporate governance, IiAS highlighted that Ashok Kurien and Manish Chokhani were on the nomination and remuneration committee (NRC) of the board and, hence, were also accountable for the manner in which remuneration had been managed in financial year (FY) 20-21 as chief executive officer (CEO) and managing director (MD) Punit Goenka’s remuneration increased by 46% (higher than what was approved by shareholders in the 2020 AGM), while employees were given no raise during FY20-21. Further, the increase in remuneration of Punit Goenka effectively contradicts the company’s assertion that Mr Goenka had taken a 20% pay-cut.
While advising shareholders to vote against the resolution to reappoint Ashok Kurien (who is liable to retire by rotation) as non-executive director, IiAS mentioned in its report that he is the co-founder of the Zee group and while the company has reclassified him as non-promoter, no requisite regulatory filings or shareholder approval was sought for this and, hence, it classifies him as a promoter.
"He was a member of the audit committee in FY19-20 and is accountable for the losses on account of related party transactions as well as governance concerns outlined by previous independent directors – which resulted in significant erosion in shareholder wealth," IiAS said while highlighting that the promoter equity decreased to 3.99% as on 30 June 2021.
"We believe the board must bring in the right mix of professionals that have an understanding of the media and the digital business. Further, having the erstwhile promoters on the board may impede the directors’ ability to take hard decisions," IiAS added.
While commenting on Manish Chokhani (former CEO of Enam Securities and former chairperson of TPG Growth for India), IiAS pointed out that he was on the audit committee of Zee Entertainment in FY19-20 and is accountable for the losses on account of related-party transactions which resulted in a significant erosion in shareholder wealth.
As a member of the NRC, IiAS said, Mr Chokhani is accountable for not professionalising the board, especially given that promoter equity has declined to less than 5%. He is also accountable for the failure to address and adequately deal with governance concerns that led to the resignation of independent directors in the past, the proxy advisory firm said.
Shareholders had approved Punit Goenka’s reappointment and remuneration for five years from 1 January 2020, at the company’s 2020 AGM. But IiAS had recommended voting against his reappointment on account of the weak oversight over the business, concerns over related-party transactions and other governance concerns.
Commenting on the issue, IiAS said "While estimating the proposed remuneration for Goenka, Zee’s management had confirmed that he had taken a voluntary pay cut of 20% in his fixed salary from April 2021. Based on this, IiAS had estimated his FY21 remuneration at Rs 5.65 crore against his FY20 remuneration of Rs 6.81 crore. In FY21, Goenka’s remuneration totalled Rs 1.31 crore, which did not include any variable pay. The board decided to revise Punit Goenka’s remuneration after undertaking a benchmarking exercise by a global consulting company. Employees, on the other hand, were given no increase in FY21."
The company’s response is also mentioned in the same IiAS report. The company has said that NRC has finalised the overall remuneration framework, after a structured evaluation process and has implemented it with the approval of the board.
Meanwhile, separately, Yes Bank Ltd, which holds 25.63% stake in Dish TV and is the single-largest shareholder, has sought the removal of the current directors and MD of the direct-to-home service, alleging that the board is not acting in line with good corporate governance standards and is not a fair representation of the incumbent significant shareholders of the company.
Interestingly, Ashok Kurien’s name also features in the special notice sent by Yes Bank to Dish TV, seeking the removal of Dr Rashmi Aggarwal, Shankar Aggarwal, Ashok Mathai Kurien and Bhagwan Das Narang as directors, along with Jawahar Lal Goel as MD of the company.
Dish TV was part of the Essel group and is run by rice trader and media magnet, Zee group founder Subhash Chandra's brother.
Shareholder activism is growing in India, driven by large institutional investors who have voted against resolutions ranging from executive pay to reappointment of directors.
Over the past few months, there has been an uptrend in the number of company resolutions being voted against by institutional shareholders at annual general meetings (AGMs), as greater investor awareness and differences with management on key decisions lead to increased shareholder activism.
In what can be viewed as a sign of increased shareholder activism, institutional investors have voted against resolutions of as many as 63 companies since the start of the AGM season in July 2021.
Last month, institutional shareholders, including foreign institutional investors and mutual funds, rejected Eicher Motors proposal to reappoint its MD Siddhartha Lal with a pay hike. IiAS had advised shareholders to reject the proposal since it believed that the large remuneration had not been commensurate with the company’s performance. This is not a solitary case.
In fact, in 2021, several companies’ employee stock option programmes (ESOPs) (Hero MotoCorp, Asian paints, MindTree, Praj Industries, Polycab, Jubiliant Ingrevia, Khadim India) have also been red flagged and vetoed by majority of the institutional shareholders.
In June 2021, Asian Paints struggled to get public shareholder approval for its ESOPs plans. In August, institutional shareholders of pharmaceutical company- Lupin, rejected a proposal to approve the ESOP 2021 and grant 6 million stock options to employees. The resolution was defeated, with 79% of the institutional shareholders voting against it.
The shareholders of Balaji Telefilms rejected a proposal to hike the remunerations of managing director Shobha Kapoor and joint managing director Ekta Kapoor in the recently concluded AGM. Being special resolutions, the two remuneration proposals needed at least 75% of the votes cast to be in favour. The company has been loss making for a number of years now and it bore the brunt of the pandemic with losses widening in the last financial year.
According to disclosures as of June 2021, promoters own 34.34% of Balaji Telefilms while public shareholders own 65.6%. Among public shareholders, foreign portfolio investors (FPIs) hold 18.43%, retail shareholders own 12% and Reliance Industries Ltd (RIL) has a 24.9% stake. The data shows neither FPIs nor RIL voted on the two resolutions that failed. In fact, they didn’t vote on any of the six resolutions at the AGM.
“The voting pattern is unlike what we see in most companies. The promoters did not vote, neither did the institutional shareholders. A fraction of the total shares got voted—just 0.21%,” explained Amit Tandon, founder and MD at IiAS.
India Inc’s minority shareholders are stepping up and demanding to be heard. They are doing this by voting down resolutions that have traditionally breezed through the shareholder approval process.
Not all instances have resulted in a failure to pass a resolution. Last month, a majority of institutional investors of Vedanta, opposed the adoption of the company’s annual financial accounts and the proposal to appoint three independent directors which included the reappointment of former SEBI chairman UK Sinha
. In this case, all the resolutions were passed with the help of promoter and non-institutional support.
Similarly, institutional shareholders also voted against higher remuneration to chairman at Bajaj Auto, Hero MotoCorp (Pawan Munjal) and Balkrishna Industries. In all three cases, like in the case of Vedanta, the resolutions were passed with the aid of promoter shareholding. But minority investors have managed to get their point across. With environmental, social, governance (ESG) norms coming to the fore, institutional investors will no longer provide tacit approval to resolutions that are not likely to serve the company’s interests.
In a conversation, a few years back, R Balakrishnan, Moneylife columnist, had said, “There should be a legal cap on the differential between the lowest and highest salaries in any organisation- Say 10X or 20X etc. Otherwise, the CEO and some select few rob the shareholders blind.”
Minority shareholders of loss-making companies are now being more vocal with their views on the rising compensation of top bosses. This might well be a wake-up call for management of companies with minority shareholders participating in big decisions, with widening disparity in pay packages of top bosses and other employees. It might get increasingly tough for management to get away with hefty packages without any resistance.
Companies should recognise that minority investors are increasingly assertive on company matters and companies should, in the interest of good corporate governance, take the views of these investors into account when putting forth various proposals.