More than 100 director appointments faced opposition from large investors

A Mint review of filings made by public companies to the National Stock Exchange (NSE) showed that between 1 April and 27 July, large public institutions opposed at least 137 resolutions of 1,300—about one in 10—put forth by 650 companies. Each of these 137 resolutions saw at least 33% votes against the resolution, as per Mint's research.

Still, all 137 resolutions were approved because of significant promoter ownership, fewer retail investors or, sometimes, a small group of public investors voting on resolutions.

According to experts, the rise in opposition is coming on the back of regulatory changes prioritising governance, the rising shareholding of large institutions in listed companies, and the increasing influence of proxy advisory firms like IiAS (Institutional Investor Advisory Services India) and SES (Stakeholder Empowerment Services).

Some examples

Ujjivan Small Finance Bank's (SFB's) move to reappoint independent director Mona Kachhawaha last Friday was approved by only 69% of shareholders, falling short of the requisite majority of 75% needed for a special resolution. 

Yet, the resolution was approved due to a technical provision. 

“As per the provisions of Regulation 25 (2A) of the Listing Regulations, the appointment of an independent director would require a special resolution, however, where a special resolution for the appointment of an independent director fails to get the requisite majority of votes but the votes cast in favour of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made under sub-regulation (2A)," Ujjivan clarified as a footnote, in the voting outcome disclosed to the National Stock Exchange. 

Also read |  The complete man & woman: Lessons from Raymond

Also read |  Street race for Ashok Leyland after margin spike in last fiscal

Also read |  Ujjivan SFB’s investors appear focused on short-term challenges

Investors and proxy advisory firms were peeved with Ujjivan’s decision to re-appoint Kachhawaha, an independent director for five years, implying that her association with the group would have extended for over a decade. 

Kachhawaha was on the board of Ujjivan Financial Services between August 2012 and August 2015. This was followed by a stint with Ujjivan SFB between December 2017 and August 2021. To be sure, Ujjival Financial Services was merged with Ujjivan SFB this May.

Shareholder opposition at Ujjivan came less than 24 hours after 42% of large investors opposed the continuation of chairman Dheeraj Hinduja at truck maker Ashok Leyland. 

However, unlike Ujjivan, which does have any promoter, Ashok Leyland is 51.1% owned by the billionaire Hinduja family. So, despite the opposition from public investors, Hinduja's candidature was stamped with overall approval from 86% of shareholders. Public investors hold 37.5% stake in Ashok Leyland as of June 2024.

Apart from Ujjivan and Ashok Leyland, several other listed companies have faced rising shareholder unrest against the candidature of board members this fiscal. 

These include the continuation of Pranav Adani, Gautam Adani's nephew, as a director at Adani Wilmar Ltd; chairman Gautam Singhania at Raymond Ltd; vice chairperson Radhika Piramal at VIP Industries Ltd; and chairman Habil Khorakiwala at Wockhardt Ltd. 

The rising opposition

Opposition from investors, including the world's biggest sovereign wealth fund Norges, UK's largest fund manager Legal & General Investment Management (LGIM), and Candian pension fund British Columbia Investment Management Corp, has centred around multiple aspects including demanding the role of chair and CEO to be held by different individuals to remuneration structure to board composition.

Mint could not ascertain the data about public shareholder voting on director appointments in earlier years. Still, at least one proxy advisory firm has called this year’s opposition during the voting outcome “high."

“More than 100 companies seeing more than a third of public institutions opposing such resolutions (director appointments) is a high number, given that the average and median is close to 95% in favour," said Amit Tandon, founder and managing director of proxy advisory firm IiAS.

Proxy advisory firms' increasing influence

At least two investors point to the rising influence of proxy advisory firms behind this opposition by large investors. 

One Bengaluru-based investor said the growing clout of IiAS and SES is contributing to such shareholder opposition. 

“Some large money managers and pension funds have internal research teams to recommend when voting on resolutions," the investor, who did not wish to be identified, said. "But many depend on the recommendations made by these independent proxy advisory firms and it is not easy for public investors to overlook their recommendations."

Tandon of IiAS acknowledges the credit given to his and other proxy advisory firms, but also explains why he believes they have made mutual funds and pension funds vocally exercise their ownership in companies. 

“Three trends have led institutions to take their stewardship policies much more seriously," said Tandon. “First, we have to give credit to the regulations. This includes the New Companies Act and the Sebi LODR (listing obligations and disclosure requirements) that have put governance issues front and centre—be it the definition of independence or focus on related party transactions and the introduction of electronic voting and the majority of the minority." 

The second trend, Tandon said, is increased institutional ownership in companies, which gives large money managers more say in such matters. “Finally, it is people like us (IiAS) who have been flagging these issues and pushing the envelope," he added. 

Tough for small companies, too

Many of the smaller companies fared worse than their larger peers. Two dozen small companies witnessed 100% opposition from public investors regarding director appointments. 

These include Mehmood Qureshi’s appointment as managing director at HMA Agro Industries; the reappointment of Suchhanda Chatterjee, wife of promoter Anjan Chatterjee, as a director at Speciality Restaurants Ltd; and Randhir Singh's appointment as executive vice chairman at Indostar Capital Finance. 

"Companies don't give sufficient information on the directors they are inducting, and so we are seeing this opposition," said Tandon of IiAS.