India Inc faces greater shareholder scrutiny in decision-making

A total of 12,219 resolutions were proposed to be passed in annual general meetings, extraordinary general meetings, postal ballots and court convened meetings of 1,616 companies listed on the National Stock Exchange between January 1 and December 22 this year (extrapolated data for another month), up from 11,583 resolutions in the same period last year, a rise of five per cent.

The data from PRIME Database translates into an average of 5.32 resolutions per meeting and 7.56 resolutions per company. Nearly 35 per cent or 4,252 resolutions were related to board changes, followed by resolutions relating to the auditors (2,475).

The number of resolutions since January 2017 where more than 20 per cent of institutional shareholders voted against the resolution stood at 591 as on November 3. This number stood at 648 in calendar year 2016 and 759 in 2015. Of these 591 resolutions, 578 got passed, mostly owing to high promoter holding, according to PRIME.

There has been an improvement in the quality of resolutions being proposed at shareholder events, according to Pranav Haldea, managing director. There has also been an increase in the participation of institutional investors, due to e-voting being made mandatory a couple of years before. In view of this, there has been far greater public scrutiny of resolutions, forcing companies to propose only those more likely to get passes.

“New regulations, including the Companies Act and Sebi’s Listing Obligations & Disclosure Requirements, have brought about a renewed focus on corporate governance,” Haldea observed.

As happens almost every year, the bulk of the AGMs in 2017 happened in the month of September. “This is a disturbing phenomenon, as studies have shown that a large majority of companies that have late AGMs are typically poor performers,” said Haldea.

Thirty-nine domestic mutual funds, as a whole, voted in favour in 88 per cent of the resolutions, against in two per cent of the cases and abstained in 10 per cent, between January and September.

Globally, institutional investors, including activist funds, tend to collaborate and put pressure on the management for changes or look for changes in the top management. The level of collaboration among long-term institutional investors such as pension funds is even higher. In the US, for instance, it is common for funds to take a stand on issues such as climate change, board diversity and appointment of directors.