Promoters Of Four Firms Face Proxy Firm Veto
Promoters of atleast four companies, seeking reappointment as directors, haven’t found favour with proxy advisory firms.
Citing governance matters, Institutional Investor Advisory Services India has advised shareholders of Eveready Industries India Ltd., Suzlon Energy Ltd., and Zee Entertainment Enterprises Ltd. to vote against resolutions proposing reappointment of promoters as directors. Proxy advisory firm Stakeholder Empowerment Services has recommended the same in the case of Suzlon, whereas InGovern has advised shareholders to vote against the promoter director at Sterling and Wilson Ltd.
Listed entities are required to seek the nod of shareholders at an annual general meeting to reappoint directors who are liable to retire by rotation in line with requirements under the Companies Act and market regulator’s regulations.
The debt-laden renewable energy company recently underwent debt restructuring—its second in a decade.
Pointing to Suzlon’s financial underperformance over an extended period of time and its management’s inability to turn the company around, IiAS has said having promoters on board may impede the directors’ ability to take hard decisions relating to the company. The board must professionalise the management, it said in a report.
Suzlon Energy will hold its annual general meeting on Sept. 25. It has proposed reappointment of two members of the company’s promoter family as directors—Tulsi Tanti, presently designated as the chairperson and managing director; and Vinod Tanti, the company’s executive director and chief operating officer.
Like IiAS, SES has also recommended shareholders to vote against the resolutions proposing reappointment of both the directors.
Explaining the rationale behind the recommendation, JN Gupta, co-founder of SES, told BloombergQuint that Suzlon performed better than its international peers at the time of its initial public offering. However, within eight years it has neared bankruptcy, he said.
Comparatively, Suzlon’s international competitors have progressed rapidly, he said. “This indicates the presence of operational issues. While businesses may face trouble in their normal course, one has to see the genesis of the problem,” Gupta said. “In our opinion, the management of Suzlon is the genesis of the current problem.”
The consumer electronics and electrical products maker will hold its annual general meeting on Sept. 29, when it will seek shareholder nod for reappointment of Aditya Khaitan as director. Khaitan is promoter and non-executive chairperson of the company at present. The company has also proposed appointment of its former chief financial officer, Suvamoy Saha, as a non-executive non-independent director.
An IiAS report has cited the following reasons for recommending shareholders to vote against the resolutions:
Aditya Khaitan: IiAS has pointed to the audit qualification made by Eveready’s auditors on account of corporate guarantees made by the company to promoter entities.
Last year, Price Waterhouse & Co. resigned as the company’s auditor citing its inability to analyse the impact of the battery maker’s financial support to promoters. Subsequently, the new auditor Singhi & Co. said in its independent auditor’s report that it was unable to obtain sufficient audit evidence regarding:
- The extent of loss allowance or impairment to be recognised on inter-corporate deposits in favor of certain promoter group firms.
- Potential liability to be recognised for corporate guarantees or post-dated cheques in favour of banks or third parties which have provided loans to the promoter group entities.
- Consequential impact of these two observations on the financials.
These, according to IIAS, comprises more than 99% of the company’s standalone net worth as on the end of last financial year.
The IiAS report said Khaitan did not provide sufficient oversight on the company’s working or setting of governance standards. It has also recommended shareholders to vote against Saha’s reappointment citing similar reasons relating to audit evidence.
SES has made no recommendation yet on these resolutions.
Sterling And Wilson Solar
Proxy Advisory firm InGovern has recommended shareholders of Sterling and Wilson Solar Ltd., to vote against the reappointment of Pallon Mistry, its non-executive director or continuing the term of Keki Elavia as an independent director. The company will be holding its annual general meeting on Sep. 30.
Sterling and Wilson Solar listed on the bourses in August last year through the offer for sale route. Its promoters had indicated in the prospectus that they intended to use a portion of the IPO proceeds to repay a then outstanding loan of Rs 2,563 crore by Nov. 2019. The loan consisted of the principal amount and interest owed to the company by Sterling and Wilson Pvt. Ltd., and certain other promoter group entities.
The promoters, however, delayed or made partial payments against certain installments by the due date citing the impact of Covid-19 and lower than expected IPO proceeds. As a result, they only managed to reduce the outstanding loan to Rs 1,644 crore by Dec. 2019 and approximately Rs 1,176 crore by September this year as per the stock exchange filings.
Sterling and Wilson’s board and audit committee finally granted a year’s extension to the promoters for repaying the outstanding part of the installments falling due in June and September 2020 on the basis of additional interest and security provided by the promoters against their assets.
InGovern has argued in its report that the failure of promoters to fulfil their obligations has resulted in loss of more than 75% in the investment value for investors due to a fall in the stock price of the company. It has listed the following reasons in its report for a negative recommendation to the shareholders.
- Sterling and Wilson did not seek shareholder’s approval for related party transactions under Sec. 188 of the Companies Act, 2013 when it initially changed the terms and conditions relating to the loans owed by the promoters.
- Shareholders cannot give an omnibus approval to such RPTs for an indefinite period. They must hold the directors accountable for their actions and vote against the proposed resolutions.
Zee’s Shareholders Reappoint Promoters
Zee Entertainment had sought shareholder nod to reappoint Ashok Kurien as non-executive non-independent director, and Punit Goenka as the managing director and chief executive officer for a period of five years with effect from the start of this year.
IiAS had recommended shareholders to vote against their reappointment citing governance matters. Goenka’s father, Subhash Chandra, the founder of the Zee Group, lost control of the company after pledging shares to fund private businesses. Eventually he had to sell the shares to pay off lenders. In July, the company’s auditor red-flagged another related-party transaction.
In this case though, SES had recommended shareholders to vote in favour of both the resolutions.
Eventually, that’s what happened in the AGM that took place on Sept. 18. Zee’s shareholders approved the reappointment of Kurien and Goenka with 92% and 96% approval of the total votes polled, according to the company’s stock exchange disclosures.
Commenting on this development, Hetal Dalal, chief operating officer of IiAS, said investors are equal stakeholders in the quality of corporate governance in Indian companies. In supporting Puneet Goenka’s reappointment and remuneration, investors must question if they have executed their stewardship responsibilities, and if this is the right message they want to send to corporate India, she said.
Dalal said IiAS’ recommendations aren’t anti-promoter. Promoters tend to have skin in the game and therefore a generational view of the business. To this extent, having promoters run the business can be beneficial to the long-term interests of all stakeholders, she said.
However, when promoters are allowed to use the company for their personal gain and destroy shareholder wealth, it’s the failure of the board to disassociate the interests of the company from its promoters, she said.
Boards need to be vigilant and protect the company from its promoters when necessary. In such instances, investors need to step in—using their shareholder vote and by engaging with the company—to unseat the promoters and push for professionalisation of management.Hetal Dalal, Chief Operating Officer, Institutional Investment Advisory Services
BloombergQuint awaits a response to queries emailed to the four companies.