The rise of minority shareholders
In November 2011, the Cadbury chocolate maker (now Mondelez) passed a special resolution for the reduction of share capital by eliminating minority shareholders to 1,360 per share. However, minority shareholders demanded 3,000 per share. They argued that their objections were not heard at the Extraordinary General Meeting (EGM) because only 79 of the approximately 800 non-promoters were present. The case went to the Bombay High Court, which set the buyout price at 2,014 yen, leaving minority shareholders disappointed.
Investor activism
Cut to 2020, when an attempt by Vedanta’s promoters to remove the company from the list was defeated by minority shareholders. The promoter group led by Anil Agarwal offered 87.25 yen per share for the 40 percent stake held by public shareholders. Minority shareholders demanded the ₹ 236-320, forcing promoters to cancel it.
From the rejection of salary increases for general managers to the cancellation of plans for the disposal of promoters’ stakes, minority shareholders finally have their say in the management of companies.
Take the case of the ongoing battle between the promoters of the Zee group and the American investor Invesco. On September 11, Invesco wrote to Zee, requesting an EGM of Zee Entertainment shareholders to oust the company’s board of directors, including CEO Punit Goenka, citing poor corporate governance. The very next day, Goenka announced a merger with Sony Pictures. But the far from appeased investor wants Goenka to be held accountable and continues to insist on holding an EGM.
In New Delhi, Eicher Motors promoter Siddhartha Lal learned the hard way when shareholders rejected a proposal to renew him as chief executive and increase his salary by 10% in a year of pandemic. At 23.23 crore, Lal’s proposed salary for the current fiscal year is said to have exceeded that of other doctors in the area.
Observers say the sudden surge in investor activism is largely due to a supportive regulatory framework (Companies Act 2013 and SEBI regulations) and likely a more mature investor community.
“While investor activism could lead to the depletion of value in the short term, it would bring responsibility, good corporate governance and create long-term shareholder value,” said Praveen Raju, partner, Spice Route Legal, adding: “It is but natural for controlling management to claim their right to run businesses in the way they think best, but such checks and balances are needed to ensure that they are attentive to their actions.
Minority rights
Vinit Bolinjkar, head of research at Ventura Securities, said it was high time for companies to start recognizing the rights of minority shareholders. The rights of minority shareholders must be protected by independent directors, but the problem now is that many of them act on behalf of the promoters.
Deepak Sanchety, former head of oversight, SEBI, said even funds and large institutional investors have rarely spoken out against developers in the past. Even the track record of the market regulator SEBI is nothing to write home about in the areas of open offers and corporate restructuring.
“Minority shareholders taking the lead in corporate governance are certainly a welcome change and the market as a whole will benefit tremendously,” said Sanchety.
Proxy consulting firms have been at the forefront of this change in many cases. In both Zee and Eicher’s case, the proxy companies asked minority shareholders to vote against the promoter group.
Shriram Subramanian, founder of proxy consulting firm InGovern Research, says: “It is important that businesses and investors engage in a positive way. As a result of activism, companies will be careful not to engage in shenanigans – financial or otherwise, he adds.