Nothing would have been remarkably unusual for Siddhartha Lal when he started work on Tuesday. It was a routine general meeting with the shareholders of Eicher Motors. Dapper Lal, who is the company’s managing director and credited with turning into an iconic brand, saw his reappointment to the corner office being turned down by his shareholders. The scratch off was a proposal to raise his salary at a time when the pandemic has spared almost no one.
Recent cases suggest a scenario where shareholders not only ask the tough questions, but get tough on controversial decisions. In the same week, the pharmaceutical company Lupine had a dispute with its institutional shareholders, according to media reports. The company’s ESOP 2021 program has been rejected. This was preceded by the Vedanta shareholders voting against the reappointment of the former SEBI boss UK Sinha for three years to the board. It was the support of the promoters that saved the day, but not until some anxious moments came through.
As shareholder activism grows louder, companies are faced with a new scenario in which greater accountability is not required; in fact it is expected. Failure to do so results in many embarrassing situations that take place in full public view. As M Damodaran, Chairman, Excellence Enablers and former Chairman of SEBI put it, “The recent voting patterns at general meetings make one thing very clear. Shareholders need additional information and justification before they endorse any resolutions that are put to the vote.”
A point that Eicher and many other companies would like to hear. A senior executive in the mutual fund industry says it is time companies spend more time, especially making critical decisions, with both institutional and shareholders. “At times like these, the ‘don’t take for granted’ approach will backfire, as we can see. Companies with a large number of promoters will push through many decisions, but the dissenting voices will now be heard, ”he explains.
Take the Eicher case, where the shareholders were not against Lal’s continuation as director. The catch was higher pay (it was Rs 19.21 billion a year, and the proposal was to increase that to Rs 21.13 billion at a time when the median salary only rose 1 percent) and that threw one interesting situation.
“Shareholders who had no problem continuing as managing director but had reservations about the proposed increase in compensation got into trouble because they could not support one element of the collective resolution and oppose the other. As a result, many of them voted against the resolution and poured out the baby with the bath “, emphasizes Damodaran. The way forward could be to revise the compensation figure and to approve it by the shareholders. As easy as it may be in the end, the drama of the annual general meeting could have been avoided. “This is a good wake-up call for companies to ensure they have an increasingly inclusive relationship with all categories of shareholders,” summarizes Damodaran.
Also read: The shareholders of Eicher Motor reject the reappointment of Siddhartha Lal as managing director because of a salary increase
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