Over two dozen directors withdraw candidatures during vote
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 embarrassment 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 (Securities and Exchange Board of India) 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.
Shroff informed that she would not be able to continue for a second term on account of several new projects that her firm has undertaken, leading to enhanced professional and time commitments, Asian Paints said in a stock exchange filing on 23 March. “She has also confirmed that there are no other material reasons for her non-continuation,” it added.
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.
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.