Shareholder Activism: Drama Within India Inc.
“I would like to just say two things, one, without mincing words, actually it is very, frustrating now, to be the Shareholder of IDFC. We have had faith on the Board and the Management team for too long. Just to give you the context, since 2015, the stock is down 20% while the Bank Nifty is up 110%. So, you can very well visualize the amount of wealth destruction, which has happened for the Shareholders. And while I appreciate that, all the efforts are being made, but my suggestion is that things now needs to be moved fast. And this needs to be done in a time bound manner, because there is huge opportunity cost also of the money. And I am sure the Board and the Management at some point of time will sympathize with the kind of losses that the Shareholders have incurred of the absolute money as well as the opportunity cost.”
“Surprisingly, for having six employees, Mr. Kakar gets paid Rs. 2 crore bonus in 2019/2020 for doing what exactly I have no idea. I would like to understand when the Board is trying to hold the Management accountable for what is happening. You can look forward and then move on, but I would like to understand when the Board, how this is allowed to happen, and what we as Shareholders are meant to do. So, echoing what the other panelists have said, I would think that if we do not get something in a time-bound manner, we do not have a choice but to ask for an EGM and remove the current Management. Thank you.”
These are excerpts from the transcript of the Pre-AGM conference call of IDFC Ltd, where big and small shareholders, including some seasoned ones such as Madhusudan Kela and Nilesh Shah (Envision Capital), made it a point to let the Management and the Board of the company know of their frustration with the delay in the sale proceeds of the subsidiaries of the company and the reverse merger of the company with its group bank.
To provide some context, when IDFC Ltd. launched its bank, IDFC Bank (Now IDFC First Bank), it moved its entire lending business into the bank. It started to primarily function as a holding company without any business operations of its own. It was the holding company of various businesses, including mutual funds, private equity, investment banking and infrastructure debt fund, and a bank.
In 2018, the company started the process of corporate restructuring, which required the non-operating holding company to sell off all its assets and finally go for a merger with the bank, i.e., IDFC First Bank. This, however, has not proceeded at the pace the shareholders would have liked it to. While many businesses have been sold off, the sale process of the Mutual Fund business and two joint-ventures of the company are yet to start.
Along with voicing their opinion on the call, the frustrated investors made sure to let the company board know about their unhappiness, with 62.28% of the shareholders voting against the reappointment of the Chairman of the Company, Vinod Rai, onto the Board. This led to Vinod Rai being forced to step down from the Board of the company unceremoniously.
This kind of shareholder activism has gained significant traction today, and IDFC ltd is not the only company facing the brunt of unhappy shareholders. MD&CEO of Zee Ltd. Punit Goenka is fighting a public battle with Invesco, a significant minority investor of the company. The Management of Dish TV is also fighting a battle with Yes Bank, which has recently moved to the supreme court as the Board of Dish TV has refused to agree to the bank’s demands to remove the existing directors and appoints nominees.
The outcomes of these battles will only be known once we have them. While the public nature of these battles gives a lot of content to our media houses and also something interesting to talk about to the executives present in the industry (gossip, in plain-vanilla terms), it also means a significant damage to the public image of the companies, the Management and even the shareholders, which can also lead to further value deterioration for the shareholders of the company, making this concept a double-edged sword.
Additionally, it is also difficult to confirm the intentions of the shareholder(s) leading the revolt against the Board and Management: The Management of Zee Ltd. has alleged that Invesco wants to go for a proxy-takeover of the company and run a very profitable company into the ground. It is difficult to know the complete story and hence take it aside.
In India, shareholder activism is a new concept and still has a long way to go. Most Indian companies continue to be promoter run, and the scope of resolutions not being approved by the shareholders (as in the case of the reappointment of Vinod Rai on the Board of IDFC Ltd.) is very limited.
However, the journey continues in the right direction. Moving from just the show of hands at an Annual General Meeting to e-voting and the voting result of each resolution being published in the stock exchanges, we have come a long way. Media houses also continue to track these numbers, and if many investors vote against any resolution, it is reported by various agencies.
As more and more companies start to move from promoter run to board managed (financial conglomerates such as IDFC Ltd., ICICI Bank and Axis Bank) and also shareholders become more aware of the power their votes carry, we may see shareholders becoming more active, and the Board and the Management being much more cognizant of what the big and small shareholders demand of them.
Retail investors, however, will continue to play a minor role. Their interests may be subordinated to institutional shareholders (Mutual Funds, Insurance Companies, Hedge Funds, and Portfolio Management Services) due to the quantum of their shareholding.
Disclaimer: The views expressed in this article are personal, and are not to be associated with the organisations we are a part of.
