Whither shareholder activism?

July 15, 2008

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.


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Posted by Indian shareholders prefer snacks over activism « India dispatch | Report as abusive

This is the cheap Gujarati culture perpetrated by the Amabanis and other such companies, where the CEO is venerated as a God.

Recently, a shareholder questioned Mukesh Ambani about his $1 billion home, funded by Reliance, and his gifting his wife a corporate jet.

Amid jeers from other shareholders, who heckled this person, Mukesh told him: If you do not like the company, sell the shares.

Frankly, this Gujarati culture is endemic in the entire state. Although waning, as younger and more savvy investors and traders enter the markets, we will see this culture die.

Posted by Eclectic Investor | Report as abusive

dictatorial approach, of Elder ambani..Dhirubhai is better in so many ways.. The younger lot of ambanis are busy in fighting among themseleves…

Posted by venkat | Report as abusive

Let Ambanis, Tatas, and Birlas go away. Even the Registrars to the public issues take a long time to answer the queries.
The need of the hour is to form a share holders associations for each company. Only the select five members should attend the AGM and discuss the various shareholders issues.
Attending AGM in hordes is just a tamasha used by the board of directors to show their image in press and public.

Posted by mesa merchant | Report as abusive

the article really shows the “lack of utility” of these shareholdes meetings and unawareness of the shareholders at large of their powers.

Posted by hitesh | Report as abusive

[…] this the start of a new season for shareholders’ meetings? We’ve often bemoaned the lack of shareholder activism in India, but clearly a big family business like the Ambani’s thinks nothing of using a […]

Posted by Ambani rivalry spills over at shareholder meeting | EconUp | Report as abusive