Institutional Activism Grows At Shareholder Meetings
Institutional investors are finding their voice at company AGMs.
Institutions are finding their voice at the annual general meetings of Indian companies, especially on executive pay and director appointments. And shareholder activism is only expected to rise.
AGMs are dominated by management-backed ordinary resolutions that can be passed by a simple majority. That’s changing as mutual funds have shown increased interest in voting on financial and remuneration proposals, says a report.
“Fund houses are coming out and actively voting, which you can see from the remarkable drop in the abstained voting percentages,” said Manali Paranjpe, a research associate at The Conference Board of U.S. and the author of the report. The percentage of “abstain” votes fell from 25 percent in 2014 to only 12 percent last year.
To be sure, active participation of public shareholders is largely limited to blue-chip companies, mostly over corporate governance and strategy. Apart from mutual funds, portfolio managers and alternate investment funds have also started questioning managements on cash utilisation and remuneration and proposed resolutions. And insurers are set to join forces.
The Stewardship Code, or the guidelines for insurers holding voting rights, kicks in from October 1. It’s aimed at improving corporate governance at investee companies and nearly 31 insurers have adopted it.
“From next year, there will be a remarkable change in the way voting is going to happen in annual general meetings,” Amit Tandon, founder and managing director at IiAS, said.
The report reviewed the voting data of BSE 500 and NSE 500 companies representing 93 percent of the market capitalisation of listed Indian firms. The study was jointly conducted by Directors’ Collectives, a research and collective initiative of The Conference Board, consultant KPMG India, executive search firm Russell Reynolds Associates and proxy firm Institutional Investor Advisory Services.
The trend of issues put up for voting is also changing. In India, resolutions are largely proposed by the management, said Paranjpe. “That’s different from countries like the U.S., where we have a clear distinction of shareholders-induced and management resolutions. Within that, we have the distinction of institutions proposing a resolution,” she said.
Back home, nearly 70 percent of the proposals between 2014 and 2016 were ordinary resolutions. The ones regarding appointment of auditors, ESOPs and related-party transactions were the most voted “against”, the report highlighted.
Three to four years ago, executive pay was not an issue, said Tandon. Now, a lot of funds are noticing that remuneration through ESOPs is either high or out of line with performance, said Tandon. “The most voted against resolution would be the one on ESOPs.”
Funds have often objected if companies issue stock options at a steep discount or opt to reprice them. Institutions have also been raising their voice against the appointment of directors. Mutual funds voted against 150 out of 1,103 such proposals in 2016, the report said.
Watch this discussion with Amit Tandon of IiAS and Manali Paranjpe of The Conference Board here: