Shareholder activism on the wane

Fewer resolutions got opposed by institutions in 2016, with little success

After the initial spurt, activism of institutional shareholders seem to be moderating. While the number of resolutions they opposed fell for a second continuous year, efforts have often been futile as promoters are able to carry home the resolutions with their strong holdings. An analysis of data provided by Prime Database of resolutions put up in 2100 shareholder meets of 1541 NSE-listed companies showed that there was significant opposition in less than 10 per cent of the cases.

Of the 6,678 resolutions between January and October 6, for which institutional voting details were available, 616 resolutions or 9.22 per cent saw more than 20 per cent of institutional shareholders voting against. Several resolutions for appointment of promoter family members saw heavy opposition from institutions. For example, the reappointment of Subhash Chandra as director of Zee Entertainment saw 77 per cent institutional votes opposing it. Over 46 per cent of institutions in Hindalco opposed appointment of Rajashree Birla.

State-owned firms such as Bhel, Bharat Petroleum, NTPC, GAIL, Powergrid and Coal India also saw stiff resistance to board appointments, usually done by the government.

About 37 per cent of Reliance Industries institutional votes went against appointment and remuneration of auditors. Around 22 per cent voted against Infosys' stock incentive plan. Similar number opposed remuneration of Siddartha Lal, managing director of Eicher Motors.

Of these 616 resolutions though, a huge 606 still got passed, mostly owing to high promoter holding. Only 10 resolutions got defeated.

Local institutions had started actively participating in voting process after Sebi made it mandatory to disclose their voting details in portfolio companies a few years ago. However, the number of resolutions that saw stiff opposition shows a declining trend. In 2015, the number was 715 in the same period and much higher at 971 in the same period in 2014. This year's number represents a fall of 13 per cent from 2015 and 36.5 per cent decline from 2014.

In the first half of 2016, 40 domestic Mutual Funds, as a whole, voted in favour in 88 per cent of the cases, against in 3 per cent of the cases and abstained in 9 percent cases, according to Prime.

Analysts feel companies have become more sensitive to investor concerns than earlier leading to improvement in quality of resolutions. Pranav Haldea, managing director, Prime Database said, "This reflects a marginal improvement in the quality of resolutions being proposed at shareholder events. There has also been an increase in the participation of institutional investors, which is on account of the facility of e-voting being made mandatory a couple of years back. In view of this, there has been far greater public scrutiny of the resolutions forcing the companies to propose only such resolutions which are more likely to pass."

Changes in the Companies Act and the SEBI Listing Obligations & Disclosure Requirements, have also brought about a renewed focus on corporate governance.

Apart from those defeated by institutional activism, there were resolutions which were defeated by promoter shareholders and wider participation of public shareholders.

Thus, in all there were 30 resolutions which were completely voted against by shareholders at AGMs/EGMs/Postal Ballots and Court Convened Meetings held since January 2016. This was up from 23 in the same period in 2015 and 27 in 2014.

Of these 30 resolutions, no resolution was re-proposed to be passed unlike previous years wherein a bulk of such resolutions were re-proposed to be passed. However, companies may re-propose these in the next two-three months.