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Sajeet Manghat
@sajeetkm
Published on August 31 2018
The next few months are going to keep 290 directors of India’s top 500 companies on the edge of their seats. AM Naik, Habil Khorakiwala, PRS Oberoi, YK Hamied, Adi Godrej, N Vaghul, BK Birla…they are all above the age of 75 years, or will be soon, and need shareholders to reaffirm their directorships soon.

Earlier this month, another veteran business leader Deepak Parekh, chairman of HDFC Ltd., was put to the same vote—and won by a less than 0.2 percent margin. Two other colleagues of his, former Reserve Bank of India governor Bimal Jalan and veteran accountant Bansi Mehta, resigned a day before the vote concluded. While that may make all the others nervous, their circumstances are rather different.

Parekh serves on nine boards, three more than the standard accepted by one foreign proxy advisory firm. Another assessed the HDFC board to lack independence and hence was opposed to the continuation of Parekh and Mehta. Jalan failed to meet the 75 percent attendance standard adopted by both firms. For these reasons, both recommended shareholders to vote against Parekh, Jalan and Mehta. Their recommendation mattered – as most HDFC’s investors are foreign institutions that vote according to the recommendations issued by these firms. While these circumstances may be unique to HDFC and Parekh, and other directors may pass the test easily, nothing can be taken for granted.

Because the shareholder approval threshold is higher than usual. Under ordinary circumstances, the appointment or reappointment of a director requires a simple majority of votes—more than 50 percent in favour of the resolution. But a new governance provision in SEBI’s Listing Obligations and Disclosure Requirement Regulations states that no director above the age of 75 can continue term or seek reappointment without shareholder approval via a special resolution. In company law, a special resolution requires the votes cast in favour of the resolution to be not less than three times the votes cast against—that is 75 percent of votes cast should be in favour of the resolution.
AMARAJABAT

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The provision, recommended by the Uday Kotak-led committee on corporate governance, comes into effect in April 2019. But companies would have to apply the yet-to-be-implemented standard in the next few months if the term of their directors exceeds April 2019, like HDFC did in the case of Parekh, Jalan and Mehta.

Nearly 42 percent of India’s top 500 companies (by market capitalisation) are yet to comply with the new regulation, according to data compiled by Prime Database.

To be precise, 206 companies are yet to seek shareholder approval for 290 directors to continue in their board seats. At least 30 eminent business leaders and eminent personalities are among those hoping it will be a “happily after” end. Or are frantically wooing proxy firms before the curtains come down.