Article published as on Saturday, 7th
April, 2020 at 7:05 p.m.
As we are working on Shareholder
Awareness Program (SAP), our aim is to spread awareness and educate people on
how to protect ourselves as minority shareholders, we can achieve this
objective through a provision of Small Shareholder Director (under
the sec.151 of The Indian Companies Act 2013)
As I mentioned in previous articles,
the unfair treatment towards individual shareholders and also lower active
participation by them.
By appointment of SSD (small
shareholder director) our voices could be heard by management and we can
develop active engagement between the two groups.
Let’s understand the process and
benefits of appointing an SSD (small shareholder director)
Benefits
·
Small shareholder director acts as a watchdog, thus
providing additional scrutiny over management.
·
It can help create better
communication between the two groups.
·
It can help create better share value
and right utilization of company assets.
·
Minority shareholder’s suggestion and
feedback could be taken seriously.
·
Representation of minority
shareholders on the board, thus better influencing decision of the board.
·
By appointing SSD, due to the
first-hand information available with SSD of the company, it could warn the
shareholders in cases of malpractices, thus helping minority shareholder stay
better informed.
·
Can help improve corporate governance
by bringing in good disclosure practices, accountability, good ethics thus
improving reputation of the company.
This
improved corporate governance can bring better returns to shareholders, how?
A
study conducted by IIAS (Institutional investor advisory services) had scored
top 100 listed corporates based on their corporate governance practices in 2016
and after 3 years returns were compared
Those
companies with higher standards of corporate governance delivered better
returns than benchmark Sensex.
This
proves one thing that quality of management matters the most, these scores were
given on various parameters.
Here is graphical report to better present the importance of
good corporate governance. (here is the link to the report)
·
Process
Let us understand the process of
appointing an SSD in brief.
A company may have SSD on its own
(example- Divis labs appointed SSD in 2014, many PSU banks also appoint shareholder director.) or by nomination of shareholders.
Depositories and stock exchanges need
to compulsorily have Shareholder Direcots (BSE and CDSL).
So to appoint SSD we need nomination by
1000 small shareholders (who own maximum nominal value
of 20,000 INR) or 10% of such shareholders, whichever is lower ,to send notice
at-least 14 days prior to general meeting with their signature along with
relevant details such as
1)Name ,2)Address, 3) Number of shares held &
4) Demat Folio number.
Now the board decides to include this
appointment resolution or not, in most cases board won’t object, if board
rejects the proposal this itself would be a warning sign for
investor, we can take action against the board under sec.241 of
The Indian Companies Act 2013 (oppression of minority shareholders
rights) and appeal in Company Law Tribunal.
Afterwards the resolution is put to
vote, ONLY small shareholders can vote, promoters, institutions cannot vote on
this particular proposed resolution.
This concludes the process of
appointing SSD.
Now we are planning to form a group of
minimum 1000 people so we can appoint an SSD on few companies to safeguard our
interest.
To help bring a change please fill out
this google form requiring your name and contact number (location is optional).
We shall reach out to you and bring a change
to protect our interest as soon as possible
(click here for the Details of sec.151 and sec.241 and class action suits from The Indian Companies Act)
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