A lot has already been said about shareholder activism in India, and how the concept has acquired a strong footing more recently. Shareholder activism may take on different forms. Shareholders may simply dump the stock of companies they believe are not being governed in the desired manner to protect investors (a.k.a. the “Wall Street walk”). They may engage with managements to influence decision-making and to ensure they act in the interests of investors. If these fail, the ultimate tactic would be to adopt a more aggressive stance by approaching the regulators or even initiating legal action before the courts.
A recent proposal by Maruti Suzuki (to convert its Gujarat plant into a wholly-owned subsidiary of Suzuki, which will in turn manufacture and sell cars to Maruti) has propelled institutional shareholders into action, and may serve as an example of shareholder activism in India. It also acts as a prequel to the treatment that activism may receive under the Companies Act, 2013 and the proposed revisions to the SEBI norms on corporate governance (expected to be effective October 1, 2014).
It appears that in this case, activist shareholders have exercised several options, some to offload shares of the company and others (mainly institutional investors) to initiate some interaction with the company in order to ensure fairness to the minority shareholders. Such instances, although previously rare, are becoming more regular in the Indian context where institutional shareholders are no longer content with either remaining passive or voting along with managements. Although the activist investors are yet to adopt a more aggressive kind that is usually witnessed in the more developed markets, SEBI has in the meanwhile been alerted to the issue.
There is already some discussion about the implications of such proposals under the new regime to take effect once the governance provisions of the Companies Act, 2013 and SEBI’s revised norms come into effect. That regime is certainly more onerous as related-party transactions not only require greater scrutiny by the board and the audit committee, but they may also require the separate approval of the minority shareholders (through a “majority of the minority” vote).