An Instance of Shareholder Activism

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
to the issue.
There is already some
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).

Even without delving into the merits of the proposal and the objections, it is evident that the
strong reaction from investors marks an important phenomenon in Indian
corporate governance, thereby inducing greater transparency to corporate

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Thoughts on a socialistic/ humanitarian plane / viewpoint:
    Lately, the topic of 'activism' has glowingly caught up and come to be discussed mainly from the angle of 'economy' , associated with allied or interlinked topics of good – ,corporate- governance, 'class action', and the like. The concept of 'Activism' itself has become more or less a buzz-, by- or pass- word, for initiating oneself into a dialogue or discussion; mostly in legal and other related circles. that falls under varying types : Shareholders' , Social, Judicial, – in the ultimate analysis- either self- or class -centric or public centric.
    From a long range point of view /in the long run, the first category is bound to have an adverse impact and prove itself a social evil . At the root of it all lies the reality as underlined in the unquestionable truth conveyed by the (s)age old saying (belief)- One man's food is another man's poison (or vice versa !).To put it simply, and purely in the sense of ‘economy’ – what one gains is another’s loss.

    Any differing/counter view to share?!

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