Shareholder Activism Raghu Babu G27th April 2012
1                                       Roster Why Shareholder activism Objectives of Shareholder activism What Shareho...
2                             Why Shareholder Activism Minority shareholders are not protected   Expropriation of minori...
3                           Why Shareholder Activism Poor Corporate Governance Practices      Company assets are siphone...
4      Objectives of Shareholder Activism Independent Watchdog on the Management Protect Shareholder’s Value   Stop pro...
5                                         Aspects of shareholder activism                         • Proxy voting         ...
6       What Shareholder Activism Can Do? Monitoring and reporting corporate activities Constructive talks with manageme...
7                         Global Phenomena Cognizant, minority shareholders in dispute over   Board    Los Angeles Count...
8                                 Indian scenario Coal India Vs. The Children’s Investment Fund. Merger of Sesa Goa and ...
9                     Evolving eco system SEBI mandated AMCs to disclose their general   policies and procedures for exer...
10Role of proxy voting advisory firms    Vote Recommendations    Corporate Governance Research and Scorecards    CG Con...
11Proxy firms – recent recommendations    Fortis Health Care    Hexaware    Divis Laboratories    Rain Commodities   ...
12                   Thank you                 raghu@rna-cs.comwww.rna-cs.com
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Shareholder Activism

  1. 1. Shareholder Activism Raghu Babu G27th April 2012
  2. 2. 1 Roster Why Shareholder activism Objectives of Shareholder activism What Shareholder Activism Can Do? Global Phenomena India – recent trends Evolving eco system www.rna-cs.com
  3. 3. 2 Why Shareholder Activism Minority shareholders are not protected  Expropriation of minority shareholders  No independent director and auditor  Lack of monitoring function in the company Agency problem & moral hazard of management  Shareholder’s value is ignored  Controlling shareholder or managements are involved in self-dealing  Nepotism in the management Weak enforcement of laws & regulations  Laws are sleeping in the book Market monitoring function is weak  Institutional investors are passive due to conflict of interest Government can not do everything www.rna-cs.com
  4. 4. 3 Why Shareholder Activism Poor Corporate Governance Practices  Company assets are siphoned for the family  Illegal or unfair related party transactions  Cross debt guarantee, hidden debt  Sales and purchases among affiliated companies  Financial subsidies for related parties: Loan No Transparency & No Accountability  Disclosures and auditor’s reports are not credible  Controlling family and management are not accounted for mis- management Poor corporate governance creates corruptions  Improving corporate governance is one of effective way to fight against corruption in the society www.rna-cs.com
  5. 5. 4 Objectives of Shareholder Activism Independent Watchdog on the Management Protect Shareholder’s Value  Stop profit-siphoning management practice  Stop subsidies to affiliated companies  Stop illegal intra-group transactions Ensure Transparency & Accountability  Independent management from controlling shareholder  Outside directors representing minority shareholders Fights against Corruptions www.rna-cs.com
  6. 6. 5  Aspects of shareholder activism • Proxy voting • Dialogue • Resolutions • Divestmentwww.rna-cs.com
  7. 7. 6 What Shareholder Activism Can Do? Monitoring and reporting corporate activities Constructive talks with management before taking actions Exercise shareholder rights  Attending shareholder meetings  Proposing agenda at the shareholders meetings  Electing directors  Proposing outside director candidate  Proxy fights  Taking legal actions  Filing civil lawsuit: Derivative actions, Class-Actions  Filing criminal investigation Proposing and lobbying for legislation www.rna-cs.com
  8. 8. 7 Global Phenomena Cognizant, minority shareholders in dispute over Board  Los Angeles County Employee Retirement Association or Lacera - to make it mandatory for all board directors to be elected annually  John Chevedden has forced Cognizant to introduce a proposal to empower investors with significant ownership to call for a special shareholder meeting Shareholders reject Citi CEO Vikram Pandit’s $ 15 million compensation package in non-binding vote. www.rna-cs.com
  9. 9. 8 Indian scenario Coal India Vs. The Children’s Investment Fund. Merger of Sesa Goa and Sterilite Industries. Akzo Nobel India – Merger of 3 unlisted firms of Promoters. Veritas, Candian research firm raised corporate governance issues and accounting practices at Reliance Industries, Reliance Communications, Kingfisher and most recently DLF. www.rna-cs.com
  10. 10. 9 Evolving eco system SEBI mandated AMCs to disclose their general policies and procedures for exercising the voting rights in respect of shares held by them. Emergence of Proxy Voting Advisory Firms  Institutional Investors Advisory Service (IIAS)  InGovern Research Services www.rna-cs.com
  11. 11. 10Role of proxy voting advisory firms  Vote Recommendations  Corporate Governance Research and Scorecards  CG Consulting and Education  Risk Monitoring  Directors’ and Executive Compensation Analysis. www.rna-cs.com
  12. 12. 11Proxy firms – recent recommendations  Fortis Health Care  Hexaware  Divis Laboratories  Rain Commodities  Piramal Healthcare  ACC  Gammon India www.rna-cs.com
  13. 13. 12 Thank you raghu@rna-cs.comwww.rna-cs.com
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