One97 Communications Ltd., known to both investors and millions of customers by its payment services app Paytm, has disclosed the outcome of the proposals it voted for at its first annual general meeting as a publicly listed company. not done. But the fact remains that Paytm’s stock closed on August 19, the day of the AGM, fell nearly two percent. 771 does not bode well for Paytm’s flamboyant founder and current MD & CEO Vijay Shekhar Sharma.
It wasn’t just that Sharma would face shareholders who have wiped out nearly two-thirds of their investments in Paytm stock’s freefall after it was listed. its issue price 2,150 per share had helped make 18,300 crore Paytm issues biggest IPO in the history of Indian stock market.
Not only has the stock declined sharply in listing, but it has maintained a downward trajectory, even trading at a 75 percent discount to its issue price when it hit its lifetime lows. reached at. While the CEO of any company who recorded a loss in both its profit and loss account and its share price would naturally expect shareholder criticism, Sharma faced a stern test – his continuity at the helm of the company. , which he has run since inception.
For the first time, all three registered domestic proxy advisory firms – Institutional Investor Advisory Services (IIAS), InGovern Research Services and Stakeholders Empowerment Services (SES) have advised shareholders to vote against a proposal that would have Sharma as MD and CEO. I propose to re-appoint. , as well as other relations relating to his remuneration, and the reappointment of the Chief Financial Officer of the Company.
All three had different reasons for their recommendation. IIAS pointed to Paytm’s continued failure to make the company profitable despite having promised to do so several times in the past (Paytm’s consolidated losses widened 2,396 crore in FY22), while others were concerned about Sharma becoming permanent on the board as he was not liable to retire by rotation, as well as “excessive” concentration in Sharma’s hands as he was chairman and CEO. .
Whether Sharma survives the trial or not is a matter of concern for the shareholders of Paytm. But the issues raised by voter advisory firms should be of concern not only to all those investing in stock markets, but also to regulators and others who have the responsibility of maintaining corporate governance standards in publicly listed companies. There is an allegation.
The call to oust Sharma raises three important issues of broader importance than what would happen in that one company. One, the extent to which management—especially CEOs—should be held accountable for performance. Second, the role of large institutional investors in listed companies. And last, but not least, the role of proxy advisory firms themselves, and the standards of governance to which they must be held accountable.
As far as accountability of promoters and key management personnel is concerned, Indian investors—whether of the individual or institutional type—have been remarkably lenient on the whole. In contrast, say Exxon Mobil, where an activist hedge fund managed to oust three of its board members last year, and where a coalition of investors is now seeking the removal of CEO Darren Woods, there are a few instances where Shareholders have punished management for non-performance. And India – at least in the post-reform period – has seen very few hostile takeover attempts.
Indifference is dangerous. Recent corporate scandals have shown the danger of excessive power in the hands of powerful CEOs (keeping in mind the NSE and ICICI Bank springing up, as do many major corporate bankruptcy). As Finance Minister Nirmala Sitharaman said in a recent speech, having rules and regulations on corporate governance alone is not enough if compliance remains weak.
It is here that institutional investors – particularly mutual funds and insurance companies, which manage large amounts of public money – can play a vital role in not only ensuring better corporate governance but protecting the interests of individual and minority shareholders. .
They have failed to do so and have often been attributed to lack of bandwidth. High-level investors holding a large number of companies often lack the time or expertise to closely monitor the performance of the companies they have invested in. This is where proxy advisory plays a vital role in providing detailed data and research to institutional investors. Flagging issues that might have escaped their attention.
This vital role played by consultants demands the highest standards of corporate governance and ethical practice on their part. Adverse recommendations by advisories have usually been countered by management with allegations of vested interests, bias or even outright criminality such as blackmail.
SEBI has made some efforts to implement higher transparency and accountability for consultations with regulations mandating disclosure of their voting recommendation policies, sharing of recommendations with the target company and reasonable time to respond to them. and set a strict timeline for correcting errors and omissions. material information. The advisory is mandated not only to disclose potential conflicts of interest but also to lay down procedures to manage and minimize such conflicts.
While there has been some criticism of SEBI’s moves as ‘over-regulation’ given the early stages of shareholder activism in India and the failure of other institutional mechanisms such as the board of directors to hold management accountable, it is important that the advisory Caesar’s Firms like Wife are not only beyond doubt, but beyond doubt.
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