Minority shareholders are no more content playing a passive role; active shareholders are questioning and engaging corporate managements to change their ways. They have begun forcing a poll on contentious resolutions. Their efforts at times meet with success. In some cases, they moved court seeking justice.
Many investors have taken cue from the classic case of Satyam Computer, where shareholders forced Satyam to reverse its decision to acquire a 51 per cent stake in Maytas Infra Ltd, owned by promoter family.
This month Akzo Nobel's non-promoter shareholders almost blocked a special resolution. “As a result of relatively less dramatic shareholder activism in recent months, Seamec management withdrew a proposal on remuneration of its Managing Director in absence profit. Last year ARSS Infrastructure dropped resolutions providing for enhancement of remuneration payable to directors' relatives holding office or place of profit,” pointed out Mr Shriram Subramanian, a former Infoscion and now running country's first proxy advisory service InGovern.
According to the Asian Corporate Government (ACGA) Secretary General, Mr Jamie Allen, corruption is a huge deterrent to activism in India – the close ties between businesses, politicians, the police and even the lower courts make investors wary of taking on “big business.”
He felt that the foreign institutional investors were less likely to be active in India than in more developed markets like Japan, Hong Kong, Singapore and Korea. “This is due to a lack of understanding of what can be done both from a legal and regulatory standpoint,” he noted in a recent case study.
ACGA, which a body of global institutions and consulting firms like CalPERS, Fidelity, CLSA, Aberdeen, Templeton, KPMG and Deloitte, expressed reservations over several India Inc's corporate governance practices including related-party transactions, warrants to promoters, disclosures and auditing.
A New York agency introduced rating some of the Indian companies on the governance scale and a few research organisations “blacklisted” companies for corporate misdemeanour.
Mr Veerappa Moily, the Union Corporate Affairs Minister, told Business Line last week that the proposed company law would allow minority shareholders to be treated as a “class” and their complaints could bunched together in a court of law, something on the lines of the US provisions for “class action suits.”
The present regulatory framework of corporate governance is contained in the Companies Act, 1956 and Clause 49 of the Listing Agreement with stock exchanges. However, there is no provision for “class action suit”.
Such lawsuits are particularly relevant for people with relatively small economic losses that would not justify fighting long legal battle to pursue their claims alone.
According to Mr Subramanian, since 2010 SEBI has been prodding mutual funds to be present and participate at the AGMs as responsible investors. Other institutional investors – the FIIs and insurance companies – are gradually waking up to protect their investments by voicing their opinion against errant behaviour by promoters,” he added.