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How India Inc.'s Promoters Voted In 2022

Of 4,991 resolutions, only 24 were defeated. SEBI should examine recategorising resolutions from ordinary to special, says IiAS.

<div class="paragraphs"><p>A woman looks at an electronic board showing the graph of the recent fluctuations of market indices. (Photo: Amanda Perobelli/ Source: Reuters)</p></div>
A woman looks at an electronic board showing the graph of the recent fluctuations of market indices. (Photo: Amanda Perobelli/ Source: Reuters)

In 2022, promoters held 50.45% of shares in the Nifty 500 companies. However, only 85.22% of shares held by them were voted on. This is a sharp decline from previous years' figure when 92.67% of the shares held were voted on, according to data compiled by proxy advisory firm Institutional Investor Advisory Services India Ltd.

The gap in voting can be explained due to tighter voting rules regarding related party transactions, which restricted interested parties—that is promoters—from voting, the report said.

There were also rare instances where promoters didn't vote as a block.

There were 22 such resolutions across seven companies.

Five companies are a part of the Murugappa Group. Nine resolutions proposed by Solar Industries India Ltd. and one resolution by Birla Corp. saw divergence in promoter voting, the report said.

The surprising inclusion in this list is Housing Urban and Development Corp., a central public sector undertaking.

The President holds equity through the secretaries of the Ministry of Housing and Urban Affairs and the Ministry of Rural Development, and 74.7% of these shares were voted in support of the resolution and 25.3% were opposed, according to IiAS.

How India Inc.'s Promoters Voted In 2022

In 2022, 4,991 resolutions were presented for voting by Nifty 500 companies. Of these, only 24 were defeated.

Institutional Shareholder Dissent

In 2022, institutional investors held 28.42% of the total outstanding shares of the Nifty 500 companies. Of the total votes cast by institutional investors, 93.68% were in favour of the resolutions, while 6.31% were against them.

The resolution that saw the highest dissent was related to employee stock ownership plans.

While management views ESOPs as deferred compensation and frequently proposes issuing these at a discount to the existing market price, investors view ESOPs as pay at risk and desire a more durable alignment between their interests and those of the management and employees. Investors, thus, want to see ESOPs issued at or close to the market price, IiAS said.

How India Inc.'s Promoters Voted In 2022

The institutional investors' dissent is lowest for the Nifty 50 and increases as the index is broadened by expanding the representation and coverage of the companies and sectors being tracked, the report said.

"As expected, companies in the frontline indices on average tend to have higher institutional ownership and a higher level of institutional engagement, which generally translates into a lower level of dissent."

The other categories that saw institutional investors' dissent include resolutions involving related party transactions, director appointments, remuneration, and restrictions on the power of the board—transactions that the board cannot approve without specific shareholder approval like slump sales and sale of substantial undertakings' intercorporate transactions.

Resolutions Defeated

The aggregate voting data shows that 97.8% of the votes were in favour of the resolutions and a mere 2.2% were against it.

"This means that in the ordinary course, all ordinary resolutions will almost always carry, even if none of the institutional investors and others vote in support of the resolution," the report said.

However, special resolutions or resolutions requiring a majority of minority votes have a marginally lower probability of being approved.

Eleven of the 3,386 ordinary resolutions presented were defeated (0.32%) and 13 of the 1,605 special resolutions (0.81%) were defeated.

The report said that unless more resolutions are classified as special resolutions or those where majority of minority investors vote, the voting outcomes will not change materially.

The Way Forward

Based on the analysis of the voting data, IiAS makes three key suggestions:

Firstly, regulators need to examine recategorising resolutions from ordinary to special to majority of minority. For instance, currently, resolutions relating to compensation paid to owner-managers are primarily presented as ordinary resolutions and need a simple majority to carry.

"Should these continue as ordinary resolutions? Should all such approvals be by way of a special resolution? Or should the promoters not be allowed to vote on their salary (increase), but obtain a majority of minority vote? Such issues need to be assessed."

Secondly, today, institutional investors are required to disclose their voting rationale. To build on this, voting rationale should be made mandatory for a few more categories of investors including corporates, trusts and private equities.

Finally, for the data and analysis to be fuller, regulators need to ask for ownership and voting disclosures across a variety of sub-categories—mutual funds, insurance companies, pension funds, alternate investment funds and others.