NEED OF THE HOUR – MAKE AGMs MORE PARTICIPATIVE

about 10 months ago
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If you are a retail shareholder, the only time that you get to meet the management of the company is during an AGM. ‘Meet’ could most probably mean “see” as one-on-one talks with retail investor; that never really happens. This is so unfair when compared to the quarterly meets with institutional investors, where they are fed with all possible data and every single question, even the difficult ones need to be answered.

So why is it that retail shareholders do not have much say or no say at the AGMs? It is usually a docile, boring, chai-samosa kind of event, with some shareholders waxing eloquent about the management while some asking the standard questions on dividend and bonus shares. That’s what most AGMs have become and that also explains why the attendance is so thin.

Reliance Industries has over 22 lakh retail shareholders but less than 1500 attend the AGM- this is the biggest attendance for any company. Even at L&T AGM, out of the around 10 lakh shareholders, only 526 turned up and at HDFC’s AGM, out of the 2.6 lakh, only 246 shareholders attended the AGM.

The truth is that companies merely follow the rule of holding the AGM; they want no interaction with the shareholders. That explains why companies hold AGMs at some of the most inconvenient locations or hold it on working days at a time when only a few can attend; or worse still, companies bunch up AGMs in such a way that it would be impossible to attend even 5 out of the 15 companies held in the portfolio. Thus inconvenience is the hallmark of AGMs.

Earlier AGMs meant free gifts and sometimes, accompanied with snacks too. There used to be a virtual mad rush to attend the AGM. But once SEBI banned this practice of gifts and snacks, people attending the AGM numbers have dwindled. So clearly, the temptation to attend the AGM was the gifts and snacks and not the actual proceedings. In fact Adani’s AGM is being held in an auditorium which has a capacity to hold 400 people but invites have been sent to thousands of its shareholders.

The purpose of the AGM – it is usually to pass ordinary resolutions like reviewing the company’s financial performance, payment of dividend, appointment/re-appointment of directors, appointing auditors.  There is also special resolution which needs shareholder approvals for issues like appointment for additional director, issue of FCCBs, issue of QIPs, expansions, new plant, increase FII limit and many such significant issues.  Thus the AGM is actually a very important meeting as it is the only time, company seeks shareholders approval and the only time in the entire year when the top management is available to take questions.

The good news here is that some retail shareholders have started asking uncomfortable but relevant questions at the AGMs. Like at the Kesoram Industries AGM in July, shareholder Janardan Kothari, presented an in-depth financial investigation into its slump sale of manufacturing assets to related parties. The management chose to ignore him and gave no answers but Kothari’s speech at the AGM was shared on Twitter and other social media sites, which eventually forced the company to provide answers.

At L&T’s AGM, one shareholder protested against the company’s decision to set up a cancer hospital on the company property as a memorial to the Chairman’s relative – he was promptly labelled as ‘trouble-maker’ and marshals were called in to evict him.

Slowly but surely, shareholder activism is taking roots; people are finally gathering the courage to question the management. As per a report put out by InGovern Services, a proxy advisory firm, in 2017, 45 companies out of the top 100 companies faced 20% dissenting votes on at least one AGM proposal. This year, Infosys AGM stretched out to 3.5 hours as the shareholders held the management to task, questioning them about the Panaya sell-off and CEO changes. Suzlon’s special resolution for new fund raising plan was voted out by individual shareholders.

Such instances of shareholder activism are far and few in-between. Surely if more shareholders could attend the AGM this could change. This is what the companies might not want but is the need of the hour as more and more fraud companies are coming to light.

With the world getting digital, when resolutions are voted electronically as an alternate to postal ballots, why can’t SEBI initiate a ruling, mandating companies to webcast live the AGM? With technology now ruling our lives, why can’t there be a session where questions can be taken from those logged in? RBI webcasts its credit policy meets and takes questions from logged in analysts, so why can’t SEBI bring in the same rules for AGMs? On one hand SEBI says that it is doing all to protect the shareholder interest first; so isn’t that a step in the right direction then?

Yes, it is all the more important to get information, especially when companies are getting more complex and more global. And it has become very important to have a say; as minority shareholders it is imperative that we can overrule some of the self-centered or wrong decisions of the company. Institutional investors always have a say but as minority retail shareholders, AGM is the place where one can voice discontent.

SEBI has to ensure that AGM participation goes up and it is the need of the hour to hold AGMs in multi-cities via video conferencing.   

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