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Mint
29-06-2025
- Business
- Mint
Zee's promoter gambit runs into resistance ahead of voting day
Mumbai: Three proxy advisory firms have recommended that shareholders of Zee Entertainment Enterprises Ltd vote against a proposal that would effectively address the promoters' Achilles' heel—their minuscule shareholding. Stakeholders Empowerment Services (SES), InGovern, and Institutional Investor Advisory Services (IiAS) have called for rejecting Zee's plan to issue preferential warrants to two promoter entities led by the company's founder and chairman emeritus, Subhash Chandra. The warrants, upon conversion, would lift the promoters' stake from 3.99% to 18.39%. The proxy advisory firms cited pricing, the rationale for raising funds through warrants, and the choice of the financial instrument as the key reasons for their recommendation. A spokesperson for Zee rejected the recommendations of the proxy advisory firms, arguing that the company's decision was taken by an experienced board in the shareholders' best interests. On 18 June, the media company's board approved raising ₹2,237 crore from two promoter entities by issuing convertible warrants at ₹132 each. Each warrant, when exercised over the coming 18 months, will be converted into one equity share. A quarter of the sum is to be paid upfront in cash, and the remainder at the time of conversion. IiAS argued that as of 31 March, Zee had cash and treasury investments amounting to ₹2,410 crore and didn't need additional fund infusion. 'Given this substantial liquidity, the rationale for raising additional capital—resulting in a 15% dilution on the expanded capital base for non-promoter shareholders—remains unconvincing," the firm wrote in a note dated 23 June. SES argued against pricing the warrants based on a formula recommended by the Securities and Exchange Board of India—which takes into account prior share price movement—as this does not account for the share price at the end of the 18-month exercise period. Zee's share price has steadily increased since sinking to a 12-month low of ₹89.29 in March. On Friday, the shares closed at ₹144.25 apiece on BSE. InGovern has argued in favour of considering alternate fundraising methods such as a qualified institutional placement of shares or a rights issue, where fresh equity shares are issued to shareholders immediately rather than over a long exercise window. A revolving door at Zee's board IiAS and SES also recommended that shareholders not ratify Saurav Adhikari's and Divya Karani's appointments to Zee's board. Adhikari was appointed a non-executive, non-independent director on 29 November, and Karani an independent director on 23 January. Zee will seek approval for their appointments on 8 July, which SES said violates the three-month window within which listed companies must get shareholder ratification for board appointments. IiAS, however, said their appointments were in line with statutory requirements. 'Nevertheless, we do not support the two board appointments because of our concerns with the board's track record in executing its fiduciary responsibilities towards shareholders," it said. If shareholders reject their appointments, Adhikari and Karani would join a list of more than 15 directors booted out Zee's board over the past three years, including Chandra's son Punit Goenka, who in November failed to secure shareholders' approval to continue as a director. He remains Zee's CEO. '... The board has protected Punit Goenka by allowing him to continue leading the company, while not being on the board. As a result, the board has ignored the voice of shareholders," IiAS said in its report. 'Given these past actions, we question the independence of the board's decision-making and raise concerns that it may not be acting in the best interests of shareholders." The proxy advisor also challenged the basis of Zee's promoters increasing their stakes in the context of recent challenges, including a tussle among shareholders and the promoters. Zee's spokesperson said the board approved the issuance of preferential warrants to the two promoter entities following an assessment of the company's growth plans by investment bank JP Morgan. 'The Company believes that raising funds from the Promoters is a preferred route, given its strategic benefits and the commitment it demonstrates from the promoter group," the spokesperson said in an email in response to Mint's queries. The spokesperson added that the increase in promoter stake will ensure Zee gets a long-term investor whose interests align with the company's strategic growth plans and ensure continuity in leadership. The spokesperson also said the proxy advisory firms had not made any specific or relevant points to justify their recommendations against Adhikari and Karani. InGovern recommended ratifying Adhikari's appointment, but said shareholders must question his resignation from Zee's board and subsequent reappointment with days. Adhikari was appointed to the board on 15 November but resigned ahead of the company's annual general meeting on 28 November, only to be reappointed the following day. Why the recommendations matter The views of the proxy advisors assume importance in the case of Zee as 96% of the company's stock is held by public investors. Of this, nearly 39% is held by domestic and foreign institutional investors, including HDFC Mutual Fund (3.66%), ICICI Prudential Mutual Fund (3.04%), Life Insurance Corporation of India (4.49%) and Norway's Government Pension Fund Global (3.86%). Institutional investors generally rely on the recommendations of proxy advisors when voting on company resolutions. Zee needs at least 75% shareholder approval for its special resolutions on the warrants issue and Karani's appointment to pass muster. It needs 50% shareholder approval for Adhikari's appointment to be ratified. The lack of a larger stake in Zee has been a pain point for the Subhash Chandra group, as they have been outvoted by minority shareholders whenever there has been a difference of opinion. Meanwhile, shareholders have been unhappy with the extent of control the promoters have over the company despite their small stake. Following its failed merger with the Indian entertainment business of Japan's Sony Group Corp., Zee has set in motion a turnaround plan to cut costs and double down on growth-focused investments. Zee is developing new business units to expand its audience and augment revenue streams, as per an investor presentation published this month. This includes micro dramas, user-generated content, live events, edutainment and emerging sports. The company is also exploring acquisitions or strategic partnerships in high-growth businesses such as digital and music.
Indian Express
01-06-2025
- Business
- Indian Express
‘Majority promoter stake in most firms influences voting outcomes'
Despite an increase in institutional ownership, promoters continue to maintain majority stake in most companies, allowing them to exercise a significant control over voting outcomes in shareholder meetings, according to a report by the Institutional Investor Advisory Services (IiAS), a proxy advisory firm. In the report – Shareholding Meetings Review for 2024, IiAS analysed shareholder meetings for the NIFTY500 companies, with focus on voting behaviours and evolving corporate governance practices. 'Their (promoters) dominant shareholding, combined with consistently high participation in voting, often results in outcomes that favour their interests. Since August 2011, our data shows that only one in every 200 resolutions has been defeated – evidencing the outsized influence of promoter ownership,' IiAS said in a report. The report said that a total of 1,057 shareholder meetings were held, where 4,840 resolutions were put to vote in 2024. Five resolution categories – director appointment, adoption of accounts, remuneration and compensation, dividend distribution and auditor appointments re-appointments – accounted for over 71.4 per cent of all resolutions. During the calendar year 2024, promoters held 51.18 per cent of the equity in NIFTY500 companies and voted 78.69 per cent of their shares. On the other hand, institutional investors owned 26.61 per cent of the equity and cast votes on 79.29 per cent of their eligible shares, with the median voting level at 87.2 per cent. The 'Others' category of shareholders had the lowest equity ownership (22.21 per cent) and the lowest share of votes cast (19.06 per cent). The report said that the promoters' abstentions were primarily in cases where resolutions required a majority-of-minority vote. A majority-of-minority vote is a mechanism in which majority of the minority shareholders are needed to pass a resolution. In this voting mechanism, majority shareholders are excluded from voting. 'When they did vote, promoters almost always supported the resolutions – in the rare 0.1 per cent of instances where they voted against, it was largely due to intra-promoter disputes,' the report said. Institutions generally supported resolutions as well, voting against only 5.44 per cent of their shares. Of the 4,840 resolutions proposed by NIFTY 500 companies, 24 were defeated. This included – director appointments (11 resolutions); employee stock option plans (ESOPs) (six); related party transactions (RPTs) (three); alterations to charter documents (two) and restrictions on board powers (two). ESOPs continue to face the highest investor dissent, followed by remuneration and compensation (of managing and executive directors), restrictions on board powers, director appointments, alterations to charter documents, it said. Dissent on RPTs has declined since these now require a majority-of-minority vote. The report said that regulators have attempted to address the imbalance (dominance of promoters in controlling voting outcomes) by limiting the delegation to the board, with shareholders needing to sign-off on most decisions. To further strengthen shareholder democracy, IiAS has recommended the board adopt – or regulators mandate, a shareholder dissent review mechanism. Under this, if a resolution is approved despite significant shareholder opposition, the board will be required to formally engage with dissenting minority shareholders, understand their concerns, and either explain themselves more clearly, or take appropriate corrective actions. Mandating boards to meaningfully respond to material dissent through a shareholder dissent review mechanism has significant potential to improve transparency and trust, the report said.
Mint
28-05-2025
- Business
- Mint
Primer: Can dissenters aid shareholder democracy?
In Nifty 500 companies, even when a majority of public shareholders oppose a resolution, it's not enough to stop it from being approved, a report by Institutional Investor Advisory Services (IiAS), a proxy advisory firm, found. Mint explains this anomaly. 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.
