Partners Column

Dear friends

Shareholder Activism

This has taken centerpiece of business newspapers for the last few months. Shareholder activism is the way in which shareholders can assert their power as owners of the company to influence its behaviour. Activism encompasses broad spectrum of activities such as – proxy voting, dialogue or active engagement with the management, putting forward shareholder resolutions, calling shareholder meetings, seeking to replace individual directors or the entire board, divesting the stake in the corporation.

Shareholder Activism (SA)is just catching up in India though corporate form of business is quite old and a substantial part of country’s business is done through this form. This probably is due to the fact that in the listed entities in India, majority is owned by promoters; the holding of professional investors is far less when compared to US and UK where Shareholder Activism is being felt since 1990s.

The following are few recent instances of SA in India:

  • Coal India vs. The Children’s Investment Fund (TCI) – TCI’s letter to Coal India for compromising the interest of minority shareholders.
  • Infosys – CLSA’s open letter to Infosys CEO S D Shibulal last week kicked up a storm. The letter, which said investors were showing ‘rare frustration’ in the company, shocked many. The reports said it was expressing “consolidated thoughts of 600 institutional investors who have $15 billion invested in Infosys.”
  • Cognizant Technologies – The Los Angeles County Employees Retirement Association (Lacera), a shareholder of Cognizant Technologies, is seeking amendments in the software major’s procedures so that corporate governance improves.

Eco system for Shareholder Activism is evolving in India with SEBI mandating asset management companies to disclose their general policies and procedures for exercising the voting rights in respect of shares held by them in March, 2010 and emergence of proxy advisory firms such as Institutional Investors Advisory Services and In Govern Research Services.

Let us hope the activism takes equitable, objective and unprejudiced approach and fosters best corporate governance practices, protects interest of all stakeholders of a corporation.


Best regards,

Raghu Babu G


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