Why is shareholder activism
necessary?
Article published as on Wednesday, 11th
April, 2020 at 1:22 p.m.
Background
To understand shareholder activism lets understand activism - it
is a campaign to bring a political or social change.
Here campaign means to educate and make people aware of situation.
Social activism
In recent time we have seen protest to bring change in banking
regulations to protect depositors after failure of some co-operative banks (PMC
Bank) and fortunately, they succeeded in bringing a change now depositors
insurance is 5 lacks instead of 1 lakh, this is example of activism.
Another example is Paris agreement which is followed by countries
and they work on stopping climate change. Even on ground level there are NGO's
working on spreading awareness regarding nature conservation.
Political activism
Then there is activism related to politics, which I would say is
very successful in India.
Let’s compare political awareness with shareholder awareness
People say voter turnout ratio is low in India, let’s look at some
figures.
2016 US general election 55.70%
2017 Japan's general election 53.68%.
Even though Japan and USA have well educated people and are
considered as developed economies we saw the voter turnout ratio (in national
elections) is poor, yet they have some of best corporate governance practices of
the world.
Shareholder activism is widespread in their stock markets.
Also regulators are quick in taking action and providing justice.
Now coming to India's scenario.
2019 India's general election 67.11%
To just to compare.
Voting percentage of HDFC bank of its AGM resolution by public
non-institution investors (individual shareholders) it’s was just 5.5%
Here one share, one vote system applies so it is in interest of
large shareholders to vote, making this ratio even worse.
We have such good voter turnout in national elections is because
1) People here are well educated and made aware of their
responsibility regarding voting.
Same thing when we see in listed companies there is lack of
interest and participation.
The reason is lower awareness among shareholders.
Shareholder activism is about education and awareness among retail
and minority shareholder, so they are in better position as an informed
shareholder.
Shareholder activism
Retail and minority Shareholder activism is absent and following
are drawbacks due to it.
Whenever I see notice on exchanges (BSE/NSE) website by any
company (HDFC bank, M&M, L&T, etc) regarding investor/analyst meet we
never find individual name, it’s always institutions.
Companies have time for institutions but hardly any time for
minority shareholders.
(This is personal incident- at a company’s general meeting I met a
person named Mr. Gulati who had huge holding, he tried to meet senior management
for months but wasn’t allowed to, even his questions at the meeting were not
answered properly, this is the oppression and injustice done towards minority
shareholders.)
To solve this problem and change this situation, creating
shareholder awareness is necessary.
Thus, electing Small Shareholder
Director to protect our interest becomes necessary.
Law also provides us minority shareholders an opportunity to
safeguard our interest through small shareholder director.
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