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PowerGrid is the first Indian company to accept a suggestion by a proxy advisory firm and act on it.
A new clause (Article 31 A) has been inserted. According to this, appointments to the board (authorised by the President of India) would be made by the board and these appointments would be valid till the next annual general meeting (AGM). The article adds the total number of directors cannot exceed that fixed by the articles.
“PowerGrid's existing AOA do not contain any provision relating to the appointment of additional directors, as provided under Section 260 of the Companies Act, 1956,” the company said in a statement. “Accordingly, it is proposed to have a provision in the AoA to empower the board to appoint the directors appointed/recommended for appointment by the President of India as additional directors...and they will be appointed by the shareholders in the succeeding general meeting.”
Though proxy firms have made several recommendations to shareholders and egged them to vote on key issues, so far, they have seen limited success, in terms of response from companies. While non-promoter shareholders have, in the past, responded by voting according to the recommendations of proxy firms, promoters have managed to have their way, owing to their majority shareholding in companies.
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CORRECTIVE ACTION * Appointment of directors must be ratified by shareholders under the Companies Act |
* In September, SES said some govt-appointed directors didn't have shareholder approval
* PowerGrid's Articles didn't provide for appointment of additional directors
* PowerGrid issues notice for postal ballot to amend Articles
* Postal ballots to be submitted by April 22; results on April 27
In September, Stakeholders Empowerment Services (SES), a Mumbai-based proxy advisory, had raised the issue of appointment of additional directors without the approval of shareholders. Before PowerGrid’s AGM, SES, in a recommendation, said, “Shareholders should note that four directors---Ravi P Singh, R P Sasmal, Santosh Saraf and Rita Sinha---have been appointed on the board of directors since the last AGM. Their appointment is not ratified by the shareholders yet. Further, the company has not proposed any resolution for this in the ensuing AGM. The government of India (promoter of the company) appoints directors on the board and does not take shareholders’ approval for this, as required under Section 255 of the Companies Act.”
SES said it felt the Companies Act applied to all companies, unless specific exemption was given to a particular company (after following the due procedure). The Department of Public Enterprise guidelines clearly stated all central public sector enterprises should follow corporate governance principles and comply with Securities and Exchange Board of India guidelines, the report said.
Section 255 of the Act states at least two-thirds of directors on the board must retire by rotation and the posts would be filled by the company in its general meetings. Section 620 allows modification of this, in case of a government company. However, PowerGrid, in the prospectus for an initial public offering and a follow-on public offering, as well as its annual report, didn't disclose it was exempt from Section 255 of the Companies Act. Therefore, either the company wasn’t complying with the Companies Act or, even if it was, had failed to disclose material facts about the company to its shareholders, SES argued.
