FUNDS - BEYOND MAKING ONLY PROFITS

about 3 days ago
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Shareholder activism is not a privilege - it is a right and a responsibility. When we invest in a company, we own part of that company and we are partly responsible for how that company progresses. If we believe there is something going wrong with the company, then we, as shareholders, must become active and vocal – Mark Mobius summed up the role of the shareholder so aptly.

We, the minority shareholders do not even take the pain of e-voting and then we cry over how the management took us for a run. And that’s why this current age of ‘shareholder activism” is very, very reassuring.

Today itself, we have two instances of shareholder activism – one by mutual funds and another by the minority shareholders. In ZEEL, its two largest shareholders, Invesco Developing Markets Fund and OFI Global China Fund LLC have called for an EGM, seeking removal of Punit Goenka - son of Essel group founder and chairman Subhash Chandra, is the MD and CEO and two others - Manish Chokhani and Ashok Kurien as directors of the firm. These two infact sent in their resignations with immediate effect.

The funds wants to appoint six new independent directors - Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepalli, and Gaurav Mehta.

The two funds hold some 11% stake and it is their buying into the company which helped Chandra seetle some of his debt. At that time, the two funds, neither asked for a seat on the Board nor did they ask for any special rights. They had given their nod for the management to continue as it was. Thus it comes as a surprise to see that they want these changes now, especially when Chandra has done well on retiring 90% of the group’s Rs.11,000 crore debt. Are these funds privy to happenings which we do not know? The ouster does make one wonder about the internal happenings in the company…something is happening which is not right.

And then, in Allcargo Logistics had to drop its plans of delisting  after public shareholders voted against the offer to take the company private.

The process for delisting was announced in August 2020 but changes in regulations, shareholder approval had to be re-initiated and the promoters sought the approval post getting the nod from the board, which got shot down.  Right now, when logistics is booming and is expected to do even better in the months ahead, shareholders would have lost out just when they would have started reaping big benefits.

These are not corporate governance issues but funds which have invested heavily in companies are actively telling companies, that too out in the public, about how to run their companies or redirecting them to make the right decisions, right from strategy shifts, leadership changes to marketing; all which will add more shareholder value.

Earlier, this was done in private but now Funds feel that putting it in the public forum keeps the minority shareholders aware, helps garner their support too and put pressure on the CEO to react.

If this movement gathers more momentum, so many companies would be on the radar. PSUs simply do not give this bandwidth thus no activism would work. But this band of activism is welcome and t should be in the public forum as it gives us shareholders also an opportunity to participate in decision making.

The institutional investors and mutual funds might already be dictating terms to the promoters within the confines of their conference rooms but taking it public does ensure a closure and give the retail investor the window to understand the workings on the company well. Yes, it could backfire when unreasonable terms are dictated but that again, when in public forum, could be thwarted.

This is positive activism and we wish mutual funds and institutions open up further; it could probably usher in a new era of leaders and transparency.

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