More than 100 director nominations met with opposition from major investors

AND Mint A review of public companies’ filings with the Stock Exchange (NSE) found that between April 1 and July 27, large public institutions opposed at least 137 resolutions out of 1,300—about one in 10—filed by 650 companies. Each of those 137 resolutions received at least 33% of the votes against the resolution, according to Mint tests.

Despite this, all 137 resolutions were approved with significant shareholder participation, a smaller number of retail investors or, at times, with a small group of public investors voting on the resolutions.

Experts say the growing backlash is due to regulatory changes that put a premium on governance, the growing stake of large institutions in listed companies and the growing influence of proxy advisory firms such as IiAS (Institutional Investor Advisory Services India) and SES (Stakeholder Empowerment Services).

Some examples

Ujjivan Small Finance Bank (SFB)’s decision to reappoint independent director Mona Kachhawaha last Friday was approved by only 69% of shareholders, falling short of the required 75% majority needed to pass a special resolution.

However, the resolution was adopted due to a technical provision.

“As per the provisions of Regulation 25 (2A) of the Listing Regulations, the appointment of an independent director would require a special resolution. However, where a special resolution for the appointment of an independent director does not secure the requisite majority of votes but the votes cast in favour of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution, then the appointment of such independent director shall be deemed to have been made under sub-section (2A),” Ujjivan explained in a footnote to the result of the vote disclosed to the National Stock Exchange.

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Investors and advisory firms were angered by Ujjivan’s decision to reappoint Kachhawaha, an independent director, for five years, meaning her association with the group would last more than a decade.

Kachhawaha was on the board of Ujjivan Financial Services from August 2012 to August 2015. He then worked at Ujjivan SFB from December 2017 to August 2021. However, Ujjivan Financial Services was merged with Ujjivan SFB in May this year.

The Ujjivan shareholder outcry came less than 24 hours after 42% of big investors opposed allowing chairman Dheeraj Hinduja to remain as chairman at truck maker Ashok Leyland.

However, unlike Ujjivan, which has no promoter, Ashok Leyland is 51.1% owned by the billionaire Hinduja family. Thus, despite opposition from public investors, Hinduja’s candidacy has received general approval from 86% of shareholders. Public investors hold 37.5% shares in Ashok Leyland from June 2024

Apart from Ujjivan and Ashok Leyland, several other listed companies are facing growing shareholder discontent over their board nominations this financial year.

These include the continuation of Pranav Adani, Gautam Adani’s nephew, as a director of Adani Wilmar Ltd; Gautam Singhania’s as chairman of Raymond Ltd; Radhika Piramal’s as vice-chairman of VIP Industries Ltd; and Habila Khorakiwaly’s as chairman of Wockhardt Ltd.

Growing opposition

The objections from investors, including the world’s largest wealth fund Norges, the UK’s largest fund manager Legal & General Investment Management (LGIM) and Canadian pension fund British Columbia Investment Management Corp., focused on a number of issues, including the requirement for different people to hold the positions of chairman and CEO, the compensation structure and the composition of the board.

Mint could not find data on public shareholder voting on director nominations in previous years. Still, at least one proxy advisory firm called this year’s vote dissent “high.”

“Over 100 companies see more than a third of public bodies opposing such resolutions (appointment of directors), which is a high number considering the average and median is close to 95% in favour,” said Amit Tandon, founder and managing director of proxy advisory firm IiAS.

The Growing Influence of Power of Attorney Advisory Firms

At least two investors point to the growing influence of proxy voting advisory firms as behind this pushback from big investors.

One Bengaluru-based investor said the growing influence of IiAS and SES was contributing to shareholder backlash.

“Some large fund managers and pension funds have internal research teams that they recommend when voting on resolutions,” said the investor, who did not want to be identified. “But many of them rely on the recommendations of these independent proxy advisory firms, and it is not easy for public investors to ignore their recommendations.”

IiAS’s Tandon appreciates the recognition his and other proxy advisory firms have received, but also explains why he believes they have led mutual funds and pension funds to openly exercise their ownership rights in companies.

“Three trends have made institutions take their governance policies much more seriously,” Tandon said. “First, we need to do justice to regulation. This includes the New Companies Act and SEBI LODR (Listing Obligations and Disclosure Requirements), which have brought governance issues to the forefront—be it the definition of independence, the focus on related-party transactions and the introduction of e-voting and minority majority.”

The second trend, Tandon said, is increased institutional ownership in companies, which gives big money managers a bigger say in such matters. “Finally, it was people like us (IiAS) who were flagging these issues and pushing the boundaries,” he added.

It’s also hard for small businesses

Many smaller companies fared worse than their larger competitors. Two dozen small companies experienced 100% opposition from public investors in director nominations.

These include the appointment of Mehmood Qureshi as Managing Director at HMA Agro Industries; re-appointment of Suchhanda Chatterjee, wife of promoter Anjan Chatterjee, as Director at Speciality Restaurants Ltd; and appointment of Randhir Singh as Executive Vice President at Indostar Capital Finance.

“Companies are not providing enough information about the directors they appoint, hence the objection,” said Tandon of IiAS.