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.

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.

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