Saturday, February 7, 2015

The State of Shareholder Activism

The latest issue of the Economist carries two pieces (here and here) arguing about the importance of shareholder activism as a means to enhance the management and governance of companies. The magazine appears to extol the virtues of activism in the current economic environment, although some might dispute whether activist investors have had as much of a positive role to play in corporate performance and governance.

The Economist analyses are largely set in the US context, much of which may not be relevant to the Indian context. However, the wave of shareholder activism (albeit of a different variety) has been building up in India as well. Activist shareholders in India seldom engage directly with managements, but are gathering greater ability to influence the outcome of shareholder decisions. This is augmented by changes in the law which encourage greater shareholder participation, and even decision making by the minority shareholders without the involvement of the controlling shareholders (e.g. for material related party transactions under section 188 of the Companies Act, 2013).  This is also evident in the case of several companies where proposals made to shareholders have been rejected due to activist minority shareholders, particularly institutional investors. In all, though the type of shareholder activism witnessed in India is considerably different from that in the US, anecdotal evidence suggests that it is having some impact in the Indian markets as well.

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