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Indian Express
7 days ago
- 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.
