Shareholder Activism, Corporate Protectionism: But Poor Corporate Governance

Moneylife Digital Team 13 December 2017

Economy & Nation

Proxy advisory firm InGovern thinks that 2017 has been a “tipping point for shareholder activism” with an unprecedented number of cases where the board and management faced shareholder dissent. However, a tipping point would suggest a substantive change—for better or worse. We think it was more a case of unprecedented turmoil which exposed how good governance is easily discarded by the most reputed business groups and companies when their personal power or interest are at stake.

InGovern has compiled an interesting set of facts. It says eight companies faced shareholder activism; but, for the first time, it was institutional investors and fund houses, such as Unifi Capital, Florintree Advisors, IDBI Trusteeship and India Horizon Fund, who led the charge, rather than individual shareholders. It adds the Infosys founder N Narayana Murthy’s activism to the list, even though Mr Murthy abruptly aborted attempt to seek answers to uncomfortable questions, once he had managed to oust Vishal Sikka as CEO. This, and the disgraceful sacking of Cyrus Mistry as CEO of Tata Sons and the removal of Nusli Wadia as an independent director through extraordinary general meeting (EGMs), are a huge blot on the effort to enforce good corporate practices. However, both, regulators and governance experts, would prefer not to dwell on it. An interesting trend noted by InGovern is the increased scrutiny of appointment and remuneration of directors and objections recorded by shareholders. Here were the headline-grabbing cases of shareholder activism in 2017.

In Raymond Ltd, chairman Gautam Singhania tried to acquire a prime property for himself and relatives at one-tenth its market value. Shareholders voted against the proposal in large numbers. On the other hand, attempts by activist shareholders of Alembic (portfolio manager Unifi Capital), PTC India (proposed by Florintree Advisors Pvt Ltd) and Mro-Tek to seek board positions failed, but not before some serious issues of governance were highlighted. In Alembic and PTC India, shareholders have been upset with the undervaluation, for a long time.
Religare Enterprises is facing two lawsuits—one filed by IDBI Trusteeship Services Limited and the other by India Horizon Fund Limited. Both are against Religare writing off Rs500-crore investment in a loss-making 100% subsidiary Religare Capital Markets Limited. The proposal had been passed, even though 99.95% of the institutional shareholders voted against it in a postal ballot.
Finally, there is the case of Supreme Tex Mart where squabbling between promoters took the fight to shareholders for removal of two promoter executive directors. The proposal was defeated.

Is such increased shareholder activism by shareholders and promoters a positive development? It is too early to say. There are some positives; but the unsavoury actions and allegation by highly regarded management or founders at Tata and Infosys have muddied the waters. Worse, the Uday Kotak committee, which was expected to provide some clarity on the road-ahead, only came up with additional red-tape and procedures which are most likely to be ignored.

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