Rise of India’s Minority Investors Challenges Local Billionaires

Shailesh Mehta, a 71-year-old investor who holds just 10 shares in the indebted telecom company of Anil Ambani was the target to blame for some of its woes at a recent shareholder meeting as the telecom unit is battling insolvency proceedings.

By challenging Reliance Communications Ltd.’s attempt to merge with another telecom operator, Sistema Shyam Teleservices, Mehta had cost banks and other shareholders, the Indian billionaire said while addressing the hall.

Until recently, individual investors were more likely to use meetings to recite poetry and sing the praises of the nation’s industrialist families and minority shareholders in India rarely clashed with management and therefore Ambani’s frustration with the activist is understandable.

Via mutual funds, or through insurance and pension providers, which are being forced by regulators to take a more active role in corporate governance, retail investors are channeling more savings into the stock market and hence Mehta’s ilk is growing.

“Earlier, the only option an investor had was to sell if they have a difference in opinion with the management,” said Amit Tandon, founder of proxy advisory firm Institutional Investor Advisory Services. “Now, investors have an option of voicing their concerns too. Companies are now disclosing far more details in anticipation of minority shareholder demands.”

“I don’t invest in shares anymore because I have lost faith, as companies don’t work in the interest of shareholders,” Mehta said in Mumbai. “There may be regulations but there is no effective mechanism to implement the regulations and there is no accountability with the financial institutions and the companies.”

There were no comments from an RCom spokesman who shared a part of the court judgement instead with the media.

Mutual funds have been made to compulsorily explain their voting decisions on proposals linked to mergers and appointment of directors since 2014 by the Securities and Exchange Board of India and institutional shareholders have become more engaged then. Asking that the decision be vetted by a “scrutinizer”, the regulator tightened the rules further in August 2016.

the World Bank’s ranking of protections offered to minority investors has since improved for the Indian market. Ahead of nations including France and the U.S., it is now in 13th place. Santiago Croci Downes, program manager at the Doing Business unit of the Washington-based lender said that there’s room to get better even while the nation’s company laws and markets rules are one of the world’s most advanced.

“India could improve on the director liability index,” Downes said.

India has also curbed the powers owners used to enjoy on proposals that involve related entities and has introduced rules allowing class action suits and rights to approach a tribunal if small stockholders’ interests are trampled on.

Splitting the roles of chairperson and managing director or chief executive where the public holds more than 40 percent in a company, doubling the minimum number of directors required and ensuring the independence of 50 percent of directors are a series of changes to rules governing boards that were recommended recently by a Sebi panel.

“Increased communication and stakeholder engagement is essential for fostering a sense of fairness and trustworthiness,” said Shriram Subramanian, founder of InGovern Research Services, one of a growing number of proxy advisory firms that have sprung up in past few years. “Shareholder activism makes companies more efficient.”

(Adapted from Bloomberg)

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Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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