Whither shareholder activism?
July is the season for shareholder meetings, an annual rite of passage for Indian companies, with directors, shareholders and reporters trooping into large, badly-lit auditoriums to hear the chairman speak glowingly of the achievements of the past year, and a litany of woes from shareholders.
As a reporter who has covered many of these meetings of some of India’s largest companies, I have quickly learned that shareholders’ questions have little to do with family squabbles, succession policy, ill-advised acquisitions, or unflattering media reports.
Instead, they usually range from pleas for factory visits and bigger dividends to the quality of the snack served at the meeting. A few will ask about the cost of printing the annual report, and offer up suggestions for new advertising campaigns or congratulatory verse on the company.
Rare is the instance when shareholders pose tough questions, let alone dissent.
Contrast that with the narrow escape the chief of British retailer Marks and Spencer had in one of the biggest shareholder rebellions in recent years, with shareholders questioning the departure of a senior official and calling for the separation of the roles of chairman and chief executive that Stuart Rose held.
Other British firms have faced shareholder ire over such matters as CEO pay hikes, stock bonuses and merger plans, with shareholders forcing CEOs to shelve these plans and even to quit.
In India, some shareholders had questioned Tata companies on falling profits years ago. A few others have also asked consumer goods maker Hindustan Unilever for updates on a thermometer factory in southern India which Greenpeace had accused of causing pollution.
But years of robust economic growth and a six-year bull market have meant shareholders have been by and large pleased with earnings growth and unwilling to ask many tough questions.
“We don’t have enough large shareholder associations that monitor and exercise control over corporates,” said Jayati Sarkar, an associate professor at the Indira Gandhi Institute of Development Research.
“Also, older small investors are culturally very tied to the company, and are not given to criticism.”
But younger shareholders are less inhibited, and as more shareholding passes into the hands of bigger, more powerful mutual funds and other financial instutions, they will have greater clout, she said.
Perhaps size does matter, after all.