Why LIC Voted Against Proposals By Asian Paints, Zee Entertainment, Vedanta, Grasim, Bharti Airtel...
Of the 47 investee company proposals that LIC has opposed so far in FY22, 26 were related to director appointments or ESOPs.
The Life Insurance Corporation of India, so far this fiscal, has opposed a number of proposals—ranging from high-profile board appointments to employee stock option plans—by marquee companies it has invested in.
Disclosures by the government-owned insurer show that it voted against all ESOP-related resolutions by Asian Paints Ltd., including the one granting stock options to Amit Syngle, managing director and chief executive officer at India's largest paintmaker.
LIC also opposed reappointment of Vedanta Group Chairman Anil Agarwal as the non-executive, non-independent director at Sterlite Technologies Ltd.
The disclosures shed light on what view India's largest domestic institutional investor, with investments of over Rs 36 lakh crore, took on certain key corporate actions.
In the case of Asian Paints, the insurer cited non-compliance with regulations. At Sterlite, it said the reason was Agarwal's low attendance at annual general meetings.
Vedanta Ltd. saw a handful of proposals opposed by LIC. It voted against the adoption of financial statements and appointment of three independent directors—in line with how a majority of institutional investors voted. One of the appointments opposed was of former SEBI Chief UK Sinha—the rationale being that the statutory auditor raised concerns over the company's accounts even as Sinha was an internal audit committee member.
LIC is mandated by the Insurance Regulatory and Development Authority to disclose its voting decisions in investee companies where it owns over 5% of the paid-up capital. According to the insurer, the voting decisions are driven by best possible interests of its policyholders and aimed at maintaining high governance standards at its investee companies.
LIC also opposed the reappointment of Ashok Kurien and Manish Chokhani as directors on the board of Zee Entertainment Enterprises Ltd. Both Kurien and Chokhani had stepped down before the vote closed and the resolutions were withdrawn. It voted against the adoption of the financial results of the company, too, due to a qualified auditor report.
At Bharti Airtel Ltd., it opposed the resolution on payment of commission to non-executive directors for being "excessive" and because it may not pass legal scrutiny as the payout was linked to Ebitda and not profit, as it ordinarily is.
Another notable opposition from LIC came at Future Lifestyle Fashions Ltd. against the scheme of arrangement involving Reliance Industries Ltd. group companies and Future Enterprises Ltd. In its disclosure, LIC said there was "absence of transparency and fairness in the deal". However, the vote was not counted since the shareholder meeting got deferred indefinitely after an order by the National Company Law Tribunal.
At Grasim Industries Ltd., an Aditya Birla Group company, the appointment of Adesh Gupta as independent director was opposed by LIC for not being in the spirit of the regulations. Gupta has worked for over three decades with the group.
But LIC was not the only institution voting against such proposals this fiscal. An analysis by the Institutional Investor Advisory Services showed that director appointments and ESOP schemes were the two categories of proposals that saw the highest dissent from institutional investors.
Of the 47 investee company proposals that LIC has opposed so far in FY22, 26 were related to director appointments or ESOPs.
Sitting On The Fence?
Curiously, for many proposals involving reappointment of promoter family members or veteran company officials as directors or ESOP-related resolutions, LIC took a negative view of the resolutions but didn't vote against them, choosing to abstain instead.
Remuneration Concerns
LIC noted on a remuneration proposal involving Hero MotoCorp Ltd.'s Pawan Munjal that the pay was disproportionate when compared to other employees. Yet, it didn't veto it and abstained instead.
Three proposals at Alembic Pharmaceuticals Ltd. involving reappointment of founder Chirayu Amin as director; his son Pranav Amin as managing director; and the company's chief financial officer found no support from LIC as the remuneration appeared to be "unreasonable and disproportionate" and unclear. But no veto either.
LIC abstained from voting on a minimum remuneration proposal (in case of losses or inadequate profits) involving BSE Ltd. Managing Director and Chief Executive Officer Ashishkumar Chauhan. It was not compliant with regulations, the insurer's disclosure said.
Remuneration proposals for N Srinivasan, promoter and managing director at India Cements Ltd.; Tanya Dubash, whole-time director at Godrej industries; Hemant Bharat Ram, managing director at DCM Nouvelle Ltd.; Ravi Jhunjhunwala, chairman and managing director at HEG Ltd. were abstained from, either due to lack of a cap on pay or because the amounts were higher than peers or not commensurate with the size and complexity of the business.
The reappointment of Eicher Motors Ltd.'s MD and CEO Siddhartha Lal was another proposal that the insurance giant refrained from voting on. Earlier in 2021, Eicher shareholders had rejected Lal's reappointment due to the remuneration structure. The company fixed his pay, issued a clarification and reappointed him saying it will seek shareholder nod again. LIC abstained but noted that reappointing the MD from a retrospective date after the proposal was rejected by shareholders once is not compliant with the law.
Regulatory Concerns
At Shree Cement Ltd., LIC abstained from voting on Hari Mohan Bangur's reappointment as managing director as the proposed pay was higher than peers and not commensurate with size and scale. It also opposed Benu Gopal Bangur's reappointment as director of the company as the appointment was not as per extant regulations. The Bangurs are the company's promoters.
For the same reason, it abstained from voting on reappointment of Pranav Adani as director of Adani Enterprises Ltd. and reappointment of Larsen & Toubro Chief Financial Officer Shankar Raman as a whole-time director.
Dilip Shanghvi, promoter and director of Sun Pharmaceutical Industries Ltd., was up for reappointment. LIC abstained from voting on the proposal as "the director holds two full time positions in companies which are in different streams of business".
At Vedanta again, LIC abstained from voting on a proposal to reappoint company founder Anil Agarwal as a non-executive, non-independent director. Reason - the appointment was not as per extant regulations of the Companies Act, 2013.
At Piramal Enterprises Ltd. AGM, LIC abstained from voting on appointment of Snapdeal Founder Kunal Bahl as independent director for the same reason—the appointment is not as per extant regulations. It also abstained from voting on the company's ESOP proposals due to inadequate disclosures.
LIC also abstained from voting on ESOP-related resolutions at JSW Steel Ltd., JSW Energy Ltd., Hero Motocorp Ltd., Britannia Industries Ltd., Lupin Ltd. for the same reason.
LIC abstained from voting on adoption of financial statements of public sector companies Steel Authority of India Ltd. and Mahanagar Telephone Nigam Ltd. due to auditor qualifications. Yet, at Reliance Power Ltd. and Reliance Communications Ltd., auditor qualifications led it to oppose the adoption resolutions. At LIC Pension Fund, it abstained from voting on financial statements despite no qualifications but over concerns regarding the quality of statutory audit conducted.