india proxy season 2016 an analysis - ingovern …€¦ · · 2016-11-30india proxy season 2016...

India Proxy Season 2016 An Analysis

InGovern Research Services Corporate Governance - Shareholder Activism

INDIA PROXY SEASON 2016: AN ANALYSIS

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Every year, the proxy season starts from January and peaks in September

when a bulk of shareholder meetings are held. This year we tracked 9664

proposals across 1344 companies across the four types of shareholder

meetings – AGMs, EGMs, Postal ballots and court-convened meetings.

Shareholder meetings have assumed greater importance considering recent

shareholder disputes. Shareholder proposals for Appointment of Director,

Removal of Director and Appointment and removal of Auditor are common.

It is heartening to see that institutional investors are increasingly

participating in shareholder meetings and voting aggressively. Some

proposals by leading companies were voted out, and many others came close

to being voted out, showing that companies can no longer afford to take

investors for granted. If institutional investors abstain from voting they are

abdicating from their responsibility to their investors and capital markets in

general.

InGovern, as a pioneer in corporate governance advisory and shareholder

activism, foresees that shareholder disputes will increase as generational

transitions and changes in business owners take place. Institutional investors

will play an important role in deciding the future of Indian companies, as

ownership structures become more diffused and as investors and lenders

start demanding greater governance standards from companies.

Summary


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Total Resolutions

9,664 Resolutions were proposed in the 2016

proxy voting season (January 2016 to September

2016) by 1,344 Indian listed companies.

This included 8,731 resolutions tabled at AGMs,

698 resolutions through Postal Ballots, 182

resolutions at EGMs and 53 at Court Convened

Meetings (CCMs).

AGM 90%

Postal Ballot 7%

EGM 2%

CCM 1%


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Ordinary and Special Resolutions

Section 114 of the Companies Act, 2013 defines an ordinary and a special resolution.

An Ordinary Resolution is a resolution which requires a simple majority of votes to

be ‘passed’, i.e., the resolution is passed if more than 50% of those who have casted

their votes have voted in favour.

A Special Resolution is a resolution which requires more than 75% of votes to be

passed, i.e., the resolution is passed if more than 75% of those who have casted their

votes have voted in favour.

77%

23%

Types of Resolutions

Ordinary Special


7,423 Ordinary Resolutions

and 2,241 Special Resolutions

proposed by Indian

companies


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Kinds of Special Resolutions

Following are some of the special resolutions proposed by a company:

Changes to share capital that results in dilution in the shareholding (issue of shares/

convertibles, creation of ESOP schemes, fundraisings, reduction of capital, etc.)

Appointment of Directors/ Managers above the age of 70 years

Remuneration to Directors/ Managers which is in excess of the limits stipulated under

the Companies Act

Increase in Inter-corporate Investments/ Borrowings/ FII Holdings Limit

Creation of charges on assets to secure borrowings

Changes to the Articles of Association

Sale of divisions/ business undertakings/ investments

Payment of Commission to Non-executive Directors

Scheme of Arrangements through Court Convened Meetings

Appointment of Director relatives to an Office of Profit with remuneration exceeding

limits as specified in the Companies Act

Change in Name of the Company, Shifting of Registered Office, etc.

Related Party Transactions that are not in the normal course of business

Keeping of Registers of Members at other place than registered office

Approval of Corporate Debt Restructuring/ Strategic Debt Restructuring Schemes

Conversion of Debt into Equity

Provision of money to Employee Welfare/ ESOP Trusts to acquire shares from the

secondary market

Changes in terms and conditions of ESOPs/ Re-pricing of Options

Reclassification of Promoters as Public Shareholders

Acceptances of deposits from Members and the Public



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Shareholder Proposals: What are they?

The Companies Act, 2013 allows shareholders to table various proposals at

shareholder meetings. Some proposals require a certain threshold limit

(shareholders to hold at least a certain percentage of voting power or a certain value

of shares) and some proposals do not require any.

Usual shareholder proposals that are allowed by the Companies Act are:

Appointment of new Director(s) to the Board: Proposals for appointment of new

Directors to the Board can only be tabled by shareholders through Section 160 of

the Act. The shareholder proposes an individual, or even her/himself, as Director by

leaving a notice in writing along with a deposit of Rs. 1 Lakh, to the company. The

deposit is returned if the proposal receives more than 25% of votes in favour.

Removal of Director(s): A shareholder, or a group of shareholders, collectively

holding more than 1% of voting power or shares with paid-up value of Rs. 5 Lakh,

can propose removal of a Director from the Board, under Section 169 of the Act.

Appointment and Removal of Auditors: Shareholder(s), with the same threshold

limit as in for removal of directors, can also propose removal of an existing statutory

auditor or appointment of a new auditor in place of the existing one, under Section

140 of the Act.

89%

11%

Resolutions Proposed By

Management Shareholder

8,624 Resolutions Proposed

by Management and 1,040

Resolutions Proposed by

Shareholders



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A month wise analysis of the resolutions proposed in 2016 proxy voting season is shown

below. The months of July, August and September 2016 had the highest number of

meetings as companies in India have to conduct AGMs within six months of financial year

ending March 31st (Section 96 of the Companies act, 2013). The requirement of companies

(except those that are subsidiaries of foreign companies) to have a financial year ending of

March 31st has been mandated in Section 2(41) of the Companies Act, 2013.

Type Jan Feb Mar Apr May Jun Jul Aug Sep

AGM 6 5 15 70 92 244 1364 2157 4778

Postal Ballot 62 71 188 72 62 63 71 50 59

EGM 25 30 60 8 23 10 5 12 9

CCM 3 4 10 5 4 13 3 3 8

Total 96 110 273 155 181 330 1443 2222 4854

0

1000

2000

3000

4000

5000

6000

Jan Feb Mar Apr May Jun Jul Aug Sep

AGM Postal Ballot EGM CCM

Month-wise Resolutions N

um

be

r o

f R

eso

luti

on

s

Meetings Wise Monthly Resolutions Proposed


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56% of resolutions proposed were ordinary business resolutions while the rest were

special business resolutions. As per Section 102 of the Companies Act, 2013 any resolution

apart from adoption of accounts, declaration of dividend, appointment of directors retiring

due to rotation and appointment of auditors are special business resolutions.

Sl. Categories of Resolutions Percentage

1. Accounts & Dividends 21%

2. Auditors Appointments 21%

3. Re-appointment of Directors retiring by rotation 14%

4. Appointment & Remuneration of Directors and Others 22%

5. Changes to Name/ MoA/ AoA 3%

6. Business Restructurings – Schemes/ Transfer/ Sale of Assets etc. 1%

7. Share Capital Changes – New Issues / Dilutions/ ESOPs etc. 7%

8. Related Party Transactions 3%

9. All Other Resolutions 8%

Total 100%

Highlighted resolutions are ordinary business resolutions while others are special business resolutions

21%

21%

14%

22%

3%

1%7%

3%

8%

1 2 3 4 5 6 7 8 9

Categories of Resolutions


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Categories of Proposals Examples of Companies

Schemes of Arrangement Cairn India, Vedanta, UPL, Advanta, Max India, HDFC, Jet Airways, Indian Hotels, Reliance Infra, Mindtree, Suprajit, Phoenix Lamps, Elecon Engg, etc.

Change in Company Name Pipavav Defence, NBCC, SKS Microfinance, Financial Technologies, Alstom T&D, Alstom India, etc.

Changes to MoA/ AoA Grasim, Interglobe Aviation, Sun Pharma, 3i Infotech, Zensar, Dish TV, Puravankara, etc.

Transfer/ Sale of Assets Bosch, Jindal Steel & Power, Hotel Leela, Siemens, Gammon India, Crompton Greaves, Indian Hotels, TIL, etc.

Related Party Transactions DB Realty, Mahindra Lifespace, Jindal Steel & Power, Adani Power, BASF, L&T Foods, Max India, UB Holdings, etc.

Bonus Issue/ Buy-backs/

Splits Mindtree, ITC, Power Finance Corp, Bharti Infratel, Bosch, Coal India, Welspun India, NBCC, Grasim, etc.

Inter-corporate Investments Dalmia Bharat, Khaitan Electricals, Jindal Stainless, Bajaj Finserv, Vedanta, Jaiprakash Power Ventures, etc.

Preferential allotments Glenmark, SBI, Mindtree, IDBI, Bank of India, Torrent Pharma, Adani Power, HDIL, etc.

Waiver of Excess

Remuneration PVR, Vedanta, Godrej Properties, Prakash Industries, Texmaco Rail, Prism Cement, GVK Power, Taj GVK, etc.

Categories of Resolutions


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Some of the resolutions proposed in the past year came under severe investor scrutiny.

Listed below are examples of top-100 companies where resolutions were voted against by

more than 20% voting institutional shareholders. Out of these, the resolutions proposed by

IDFC (pertaining to stock options) and Zee Entertainment (pertaining to creation of

charges on assets) failed to pass with requisite majority.

Company Name Date Meeting Resolution(s)

Directorial Appointments

Zee Entertainment Enterprises Ltd

July 2016 AGM Re-appointment of Dr. Subhash Chandra (Promoter) who retires by rotation

Hero MotoCorp Ltd September 2016

AGM Appointment of Mr. Paul Bradford Edgerly as an Independent Director

Bharat Petroleum Corporation Ltd

September 2016

AGM Re-appointment of Mr. Shrikant Prakash Gathoo who retires by rotation

Appointment of Mr. Anant Kumar Singh as a Govt Nominee Director

Appointment of Mr. Ramesh Srinivasan as Director (Marketing)

Appointment of Mr. Ramamoorthy Ramachandran as Director (Refineries)

Bajaj Auto Ltd July 2016 AGM Re-appointment of Mr. Manish Kejriwal who retires by rotation

Hindalco Industries Ltd September 2016

AGM Re-appointment of Mrs. Rajashree Birla who retires by rotation

PowerGrid Corporation of India Ltd

September 2016

AGM Re-appointment of Dr. Pradeep Kumar who retires by rotation

Re-appointment of Ms. Jyoti Arora who retires by rotation

Ultratech Cement Ltd July 2016 AGM Re-appointment of Mrs. Rajashree Birla who retires by rotation

Resolutions under Scrutiny


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Company Name Date Meeting Resolution(s)

Remuneration to Directors

Ambuja Cements Ltd April 2016 AGM Revision in Remuneration of Mr. BL Taparia as a Director

Ambuja Cements Ltd October 2016

Postal Ballot

Extension of Services available from Mr. BL Taparia, Non-Executive Director

Eicher Motors Ltd June 2016 AGM Payment of Remuneration to Mr. Siddhartha Lal as MD

Auditor Appointments

Reliance Industries Ltd September 2016

AGM Re-appointment of Statutory Auditors

Sun Pharmaceutical Industries Ltd

September 2016

AGM Re-appointment of Statutory Auditors

Stock Options

Infosys Ltd March 2016 Postal Ballot

Approval of 2015 Stock Incentive Compensation Plan

HDFC Bank Ltd July 2016 AGM Issue of Stock Options

IDFC Ltd* June 2016 Postal Ballot

Re-pricing of Stock Options

Grant of Stock Options to employees of Subsidiaries

Other Matters

Zee Entertainment Enterprises Ltd*

February 2016

Postal Ballot

Creation of Charges on Assets to secure borrowings

Tata Power Ltd September 2016

AGM Increase in Inter-Corporate Investments

* The company failed to pass the resolution with requisite majority, and the resolution was voted

out


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Directorial Appointments

The reason for institutional shareholders voting against such proposals ranged from

insufficient attendance and high outside directorships to low independence of the Board.

Dr. Subhash Chandra of Zee and Mrs. Rajashree Birla of Hindalco were voted

significantly against because of their low attendance in the Board meetings.

4 Directors of Bharat Petroleum and 2 Directors of Power Grid Corp were voted

significantly against because their appointment would have affected the independence

of the Board.

There were votes against Mr. Edgerley as Independent Director of Hero MotoCorp

because he was serving as a non-independent member on the Board immediately prior

to his appointment as an Independent Director.

Mr. Manish Kejriwal’s appointment got many against votes because of his low

attendance and the low independence of the Board.

Remuneration to Directors

Resolutions pertaining to Mr. BL Taparia at Ambuja Cements were significantly voted

against because of his pecuniary relationships with the company.

Remuneration to Mr. Siddhartha Lal of Eicher Motors was significantly voted against

because of non-clarity of his pay-structure.

Auditors Appointments

Auditor re-appointments were significantly voted against because of their long

association (more than 10 years) with the companies – Reliance Industries and Sun

Pharma.

Stock Options and others

Proposals related to stock options faced resistance because of non-disclosure of various

terms of stock options as well as performance targets to be achieved.

Proposal for creation of charges in Zee was voted against on grounds of lack of

sufficient information provided to the shareholders.

Reasons for Scrutiny


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Along with a myriad range of routine resolutions, there were a few non-routine resolutions

that were tabled for approval of shareholders in 2016 Proxy Season. Some of these

resolutions were a requirement by the Companies Act 2013 while others were company-

specific resolutions.

Some of these resolutions are listed below:

1. Charging of fees for service of documents to members

There were 99 resolutions proposed in 2016 Proxy Season which sought approval for

charging a fee for servicing documents to members. This is as per Section 20 of the

Companies Act 2013 which states, “Provided that a member may request for delivery of

any document through a particular mode, for which he shall pay such fees as may be

determined by the company in its annual general meeting”. Some of the companies that

proposed this resolution are: Alstom India, Strides Shasun, Essar Shipping, Balrampur

Chini Mills, Century Plyboards, Aditya Birla Fashion, etc.

2. Continuation of employment of Managing/ Whole-time Directors on attaining 70

years of age

16 such proposals were proposed in 2016 Proxy Season. This is as per Section 196 of

the Companies Act which requires companies to seek a fresh approval through a special

resolution for appointment or continuation of employment of their Managing/ Whole-

time Directors who attain 70 years of age. Some of the companies that proposed this

resolution are: Birla Corporation, Emami, Thermax, IPCA Labs, Munjal Auto, Orient

Paper, Pidilite, Prakash Industries, PSL, etc.

3. Separate resolutions for adoption of standalone and consolidated accounts

Many companies, which had tabled a single proposal for adoption of accounts in the

past, tabled separate proposals for adoption of standalone and consolidated accounts in

the 2016 Proxy Season.

4. Provision for conversion of debt into equity

The Strategic Debt Restructuring Scheme by RBI allows investors to have an option of

conversion of a part of the debt into equity in case of a default by the company. Some of

the companies that proposed this resolution are: Electrosteel Steels, IVRCL, 3i Infotech,

Hindustan Construction Co., Patel Engineering, Jaiprakash Power Ventures, etc.

Non-Routine Resolutions


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Ambiguity in the Companies Act, 2013

A few provisions in the Companies Act, 2013 are often misinterpreted and result in

companies violating the Act. One such provision is Section 196(3) of the Act which pertains

to “Continuation of employment of employment of Managing/ Whole-time Directors

on attaining 70 years of age”.

The provision states:

“No company shall appoint or continue the employment of any person as Managing Director,

Whole-time Director or Manager who

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be

made by passing a special resolution in which case the explanatory statement annexed to the

notice for such motion shall indicate the justification for appointing such person;”

Some companies appear to have misinterpreted this provision that no fresh resolution is

required for Managing/Whole-time Directors who attain 70 years of age. These companies

sought re-appointment through a special resolution only when their directors’ current

tenure came to an end. Examples of this are: Jagran Prakashan (Mr. Mahendra Mohan

Gupta - 75 years and Mr. Dhirendra Mohan Gupta - 72 years), Divi’s Labs (Mr. MR Divi – 72

years), Lupin (Mrs. MD Gupta – 72 years), etc.

Other companies sought fresh appointment of their Managing/Whole-time Directors

through special resolutions long after they crossed 70 years of age. Examples of this are

India Cements (Mr. N. Srinivasan – 71 years), Birla Corp (Mr. Pracheta Majumdar – 71

years), etc.

The provisions explicitly state that no company shall continue the employment of any

person as Managing/Whole-time Director/ Manager who has attained 70 years of age. It

means the day the individual attains 70 years of age, his employment becomes null and

void. Hence, it is necessary for a company to seek fresh appointment through a special

resolution before the individual attains 70 years of age. Any company not doing so, is in

violation of Section 196(3) of the Companies Act, 2013.

A Point to Ponder


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ABOUT INGOVERN

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also assists companies in enhancing their corporate governance practices.

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Disclaimer

This report is proprietary and may not be reproduced in any manner without the written permission of

InGovern Research Services Pvt. Ltd. (“InGovern”). While we have taken due care and caution in the

compilation and presentation of the information and data in this report, no warranty is made as to the

completeness, accuracy or utility of this analysis.

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india proxy season 2016 an analysis - ingovern …€¦ · · 2016-11-30india proxy season 2016...

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