How shareholder activism peaked in India

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From the rejection of CEO salary increases to the cancellation of promoters’ plans to delist their companies, shareholder activism has never been stronger.

Even as promoters prepare to reward big bosses with big pay increases for guiding their businesses through the Covid crisis, investors want bosses to moderate their expectations as well in the event of disappointing performance.

For example, shareholders of Eicher Motors, the makers of the iconic Royal Enfield motorcycle, rejected the special resolution to re-appoint Siddhartha Lal as chief executive with a huge pay rise. Never mind that it wasn’t that long ago that they introduced Lal as the man behind the turnaround of the Royal Enfield brand.

Makarand Joshi, founding partner of MMJC and Associates LLP, says investors in Eicher Motors had no issues with Lal’s re-appointment, but did not approve the resolution on wage hikes, indicating vibrant shareholder activism taking shape in India.

Awakening

It is a wake-up call for board members and senior executives to effectively play the oversight role and avoid extending unreasonable financial support to group companies, he added.

Nonetheless, Eicher Motors re-appointed Lal as chief executive with a maximum salary cap of 1.5 percent of profits, subject to approval by mail-in ballot from shareholders.

In the previous fiscal year, Lal had received 21.12 crore yen in salary, including commissions and perquisites, while Vinod K Dasari, who resigned as CEO of Royal Enfield and executive director of Eicher Motors from Aug 13, 2021, won 25.37 crore without a profit share.

Justifying Lal’s reappointment, S Sandilya, chairman of Eicher Motors, said that when Lal took charge of Royal Enfield in 2000 the division was experiencing huge losses and had to close. He had indeed turned around the mark. But the pandemic played a spoiling role, and the motorcycle maker’s profits fell 30% to 1,330 crore yen in the previous fiscal year.

Good for retail investors

At a recent summit, SEBI Chairman Ajay Tyagi said shareholder activism is not bad as long as it protects the interests of retail investors.

Allcargo Logistics had to abandon its delisting plan after shareholders resisted the proposal tooth and nail. In August last year, promoters of Allcargo Logistics estimated that it would be difficult to raise growth capital without going private. Following resistance from shareholders, the promoters withdrew their project.

While flexibility for shareholders is good to some extent, any delay in making the right decision can lead to serious erosion of value and loss of jobs.

Unlike others, computer giant Wipro has managed to overcome shareholder activism by renaming Patrick Ennis and Patrick Dupuis as independent directors despite proxy advisers asking shareholders to vote against the proposal.

But Balaji Telefilms was not so lucky as investors rejected the proposal to increase the salaries of Ekta Kapoor (co-managing director) and her mother Shobha (managing director) and capped the commission in absolute amount.

Mohit Saraf, Founder and Managing Partner, Saraf & Partners, said the country has had brilliant successes in shareholder activism with the regulatory architecture designed to ensure certain checks and balances on the powers of promoters.


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