It’s nothing short of humiliating for a listed company when its investors snub a proposal to fix a top executive’s salary. It seldom happens in the Indian context, especially when the executive in question is also from the promoter family.
But in the second half of 2021, that’s exactly what happened with three companies.
Eicher Motors, the maker of Royal Enfield motorcycles; Balaji Telefilms, a producer of TV shows and films; and LT Foods, which owns the Daawat brand of rice, were left red-faced when shareholder resolutions to decide their managing directors’ remuneration were turned down. Among the reasons investors cited were a lack of clarity in the salary structure and the executive’s pay not being in line with the company’s profits.
A fund manager with a large mutual fund partly chalks up the increased investor activism, which has traditionally been in short supply in India, to a diktat from the capital markets regulator. In March 2021, the Securities and Exchange Board of India (Sebi) asked asked Mint Sebi makes voting on corporate resolutions mandatory for MFs Read more mutual funds to compulsorily vote on most key corporate resolutions—remuneration, director appointments, and ESOPs ESOPs ESOPs Employee stock ownership plans , among others—from April. (The mandate extends to all resolutions from April 2022.)
Mutual funds could no longer sit on the sidelines of contentious resolutions. As a result, only 2% of the votes cast by mutual funds in April-September 2021 were abstentions, compared to 12% in the same period in 2020, according to information sourced by The Ken from Prime Database, a capital markets data provider. And 5% of those votes were against resolutions, the highest in seven years. (Mutual funds are yet to disclose their voting data for the three months ended December, but most resolutions are typically voted on by September.)
“Sebi has done a brilliant job by forcing us to vote,” says the fund manager quoted earlier. They and several others quoted in the story requested anonymity since they did not want to be seen publicly talking about what is still a very touchy subject.
Mutual funds are vital stakeholders in India’s equity markets. For instance, they own anywhere between 3-27% of India’s top 10 companies by market capitalisation. And retail investor participation in mutual funds has been on the rise—they accounted for a quarter of mutual funds’ total assets under management (AUM) as of September 2021, up from a fifth half a decade earlier.
“The moment retail investors park their money with mutual funds, there is a fiduciary responsibility they are entrusting to the funds, and the funds have to exercise it,” says Shriram Subramanian.
