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    Is Eicher shareholders' vote against Siddhartha Lal a wake-up call for India Inc?

    Is Eicher shareholders' vote against Siddhartha Lal a wake-up call for India Inc?

    Is Eicher shareholders' vote against Siddhartha Lal a wake-up call for India Inc?
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    By Sandeep Singh   IST (Updated)


    Acknowledging that Indian capital market laws have come a long way, Stakeholders Empowerment Services' JN Gupta believes there is a need to improve retail investor participation.

    Shareholders not just fractionally own a business in exchange for fulfilling its long-term capital needs but also have a say in some of its key decisions. While equity represents the value of an investor's holding in a company, it also determines their voting rights -- a powerful tool in keeping it on track.
    In India, shareholders have over the past few years have become more vociferous in opposing moves they feel smack of unfairness or are not in the best interests of the company.
    Last week, Eicher Motors shareholders voted against the reappointment of Siddhartha Lal as Managing Director protesting a proposal to raise his salary by 10 percent. Company sources told CNBC-TV18 that Eicher is working to resolve the issue as early as next week.
    "Any step which improves governance will strengthen the market and participation does keep a company's board on its toes," JN Gupta, Founder and Managing Director of Mumbai-based proxy advisory firm Stakeholders Empowerment Services (SES), wrote in an email interview to CNBCTV18.com.
    "I never believe in activism," says Gupta, a former Executive Director of capital market regulator Sebi.
    "Over a period of time, say in the last decade, things have changed a lot for better with legislative support, regulatory push, and the advent of proxy advisors. If I have to name one factor, I would say e-voting has been the gamechanger, which has made participation seamless and without any additional cost and time. Calling shareholders' participation activism would be unfair as activism somehow relates to a process that is not part of normal life," says Gupta, whose SES advises investors on how to vote on a range of matters at listed companies.
    E-voting enables shareholders to vote on company resolutions without having to be present at the general meeting in person.
    "Many a time, not voting might result in an adverse consequence for all," Gupta says.
    "I cannot say good or bad but it is a wake-up call for India Inc, especially promoter-dominated companies as well as independent directors, as a few have taken their role quite lightly like a post-retirement afternoon golf game... As far as SES is concerned, we are putting Audit Committee (AC) and Nomination and Remuneration Committee (NRC) members under close watch on performance across all boards," SES's Gupta said.
    Acknowledging that Indian capital market laws have come a long way, Gupta believes there is a need to improve retail investor participation.
    "In the last decade or so, the first case of shareholders' active participation that was noticed was the defeat of resolution in Tata Motors; the second was the failure of a number of resolutions in United Spirits, and one resolution in Siemens," recalls Gupta.
    He was referring to three separate instances during 2014: when Tata Motors shareholders rejected a compensation payment in excess of prescribed limits to three directors; United Spirits shareholders rejected nine resolutions with entities related with then-chairman Vijay Mallya, and when Siemens India shareholders rejected a proposal to sell the company's metal tech business to its German parent, forcing the board to revise the offer.
    "Tata Motors' was an issue of disclosures, which got approved the moment the company made detailed disclosures and rationale... USL's was abusive related-party transactions (RPT)... We may see more cases of investor anger going forward; SES believes the functioning of the NRC and the AC has to improve considerably," he says.
    Proxy advisory firms play an important role in the market. A proxy advisor guides investors on how they can vote on matters that require shareholder approval at listed companies. Among other functions, it identifies governance issues at companies, promoting shareholder awareness.
    No one wanted to speak to SES when it began its journey in 2012, mentions Gupta. "Now companies are proactive and want to talk to us before our report is released. Unfortunately, we cannot talk to the companies before the report is released as we want information that is provided by companies to be so self-contained that investors can take a rational decision without any further input either from companies or from SES."
    "Most companies have investor calls every quarter. In my opinion, the management and the board must devote some time to discuss investors' vote, especially all those issues that investors have voted against even though the resolution might have passed. As far as the regulator is concerned, it can suggest that the company must share proxy advisory reports they receive with the board members. It will enable board members to know the opinion of proxy advisors on the functioning of the company and the board as far as governance issues are concerned. It will have no cost impact as proxy reports are available to companies free of cost as per the Sebi diktat," says Gupta.
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