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This article is more than 1 month old.

Why more power to minority shareholders matters

Mini

Amit Tandon of proxy advisory firm IiAS recognises e-voting and the majority of minority rule as two big changes in the Companies Act that have empowered shareholders in a big way.

Why more power to minority shareholders matters
Changes in several laws over the past few years have empowered investors in many ways. Through e-voting, for instance, investors have a bigger say in the companies they partly own. It is mandated by law for companies with at least 1,000 shareholders to provide their members with a facility to exercise their right to vote at general meetings – which happens by electronic means.
E-voting has emerged as a powerful tool in keeping companies on track, and in the best interest of its investors. It enables shareholders to vote on company resolutions without having to be present at the general meeting in person. It is recognised by many as an important milestone in the development of the Indian capital market.
Shareholders have over the past few years become more vociferous in opposing moves they feel are unfair or not in the best interests of the company. Regulators have brought in mechanisms to make the e-voting process more secure, convenient and simple for shareholders.
More power to shareholders
Amit Tandon of proxy advisory firm IiAS recognises e-voting and the majority of minority rule as two big changes in the Companies Act. "The biggest change is e-voting, which now enables each share in the voting process... Earlier, an investor owning 10,000 shares entering a general meeting would be counted as one shareholder. With e-voting, you cannot do that," he told CNBCTV18.com.
Earlier, many shareholders never went to the annual general meetings, and it was much easier for companies to get most of their resolutions passed. Things have changed for good, said Tandon.
Before the introduction of e-voting, shareholders exercised their voting rights either by attending a general meeting in person or through a postal ballot, which required them to send their assent or dissent in writing in response to a notice from the company. This made the whole process cumbersome, and in fact, led to limited participation from shareholders.
"Serious investors could attend only one of the important meetings in a day... But now that they can vote from the comfort of their home without any hassles... That's why more anti-shareholder resolutions are getting defeated," he said.
Things have changed drastically for shareholders in the recent past. Now they can exercise their voting right more promptly and effectively.
"With e-voting, you can not only make sure to attend all company general meetings of your interest, but you can also attend multiple meetings in a day, something that was impossible earlier. Security holders can vote on resolutions anywhere, anytime," said Tandon of IiAS, which advises shareholders on how to vote.
The majority of minority rule has brought about a major change, said Tandon.
According to the majority of the minority norm, companies are required to undertake related party transactions only after receiving approval from the majority of non-interested parties - investors other than promoters or majority shareholders, who are usually the interested parties.
"Earlier, if you look at the structure of voting, the arithmetic was in favour of companies in getting their resolutions passed easily... Say if 50 percent stake of a company was with promoters, 35 percent with institutional investors, and 15 percent with retail investors, a large number of resolutions that required approval of 75 percent investors would be passed anyway even if you get 50 percent voting in each category," he explained.
However, there is a long way to go in strengthening the law in empowering the shareholder. "You have to continue to focus on these things... have to keep your foot on the accelerator," said Tandon.
Investors are more aware of rules and their rights now, and e-voting is a major step in that direction.
Citing the example of differential voting rights (DVRs), he asked: "If you get a regular share and not exercise your right, what's the use?"
DVRs are issued with lower voting rights compared to regular shares and used by companies to raise money without diluting effective control. This makes them more suitable for small investors who do not participate in the voting process.
Over time, more people will eventually indirectly strengthen the market, he said.
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