Primer: Can dissenters aid shareholder democracy?
How do no-votes get bypassed?
According to IiAS's review, most shareholder resolutions of Nifty 500 companies pass because the promoters hold the majority 51% of shares. Their holdings are significant. Public shareholders, including institutional investors, big money managers like mutual funds, insurance firms, pension funds and foreign portfolio investors, make up about 27% of ownership. Then, there are 'others' —a mix of retail investors, HNIs, family offices and private equity players. These groups do not have a majority and have lower voter participation. So even when many of them vote against a proposal, they can be ignored.
Do investors show a voting pattern?
In 2024, institutional investors held over a quarter of shares in Nifty 500 companies and voted on nearly 80% of the proposals. Of 4,840 resolutions put before shareholders during the year, only 24 were rejected, meaning 99.5% were approved, underlining promoter dominance. Resolutions on pay packets were opposed. Adani Ports and Special Economic Zone Ltd saw 46.91% institutions vote against a compensation proposal, yet it passed. Similarly, 45.26% opposed a resolution at Persistent Systems Ltd but it passed. Employee Stock Option Plans faced the most dissent from institutional investors.
What does the report say on types of resolutions?
Those on owner-manager remuneration are classified as 'ordinary' and need a simple majority. Since promoters vote on these, they always get approved. The report suggests reclassifying these to 'majority-of-minority', requiring more votes and stopping promoters from voting on their compensation. This could result in greater accountability and fairness.
Do retail and small investors have a say?
They have very little say in company decisions. In calendar year 2024, retail investors owned 22% of the shares in Nifty 500 companies, but only 19% of them exercised their voting rights. Even when they did vote, fewer than 1% voted against. In contrast, promoters who owned more than 51% of the shares voted on the majority of their holdings, giving them higher influence. Because of this imbalance, even if small investors disagree with a decision, it rarely changes the outcome. Their voices often go unheard.
How can the dissent mechanism improve?
IiAS proposes a dissent review mechanism, where more than 10% of votes against a resolution would trigger a formal response from the company. After engaging with dissenting shareholders, the board would disclose any action taken, such as amendments made to the resolution. This is inspired by the Indian Constitution, which allows the President to return a bill to Parliament for reconsideration. Translated for resolutions with more than 10% dissent it means fewer than one in ten resolutions will need to be revisited.
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