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Institutional EYE

Commentary on Corporate Governance Issues

Attending AGMs from home

As corporate India re-imagines the workplace post COVID-19, the Ministry of Corporate Affairs too would be well-placed in re-imagining how AGMs will be held. Physical AGMs have long lost their relevance; yet the expanded shareholder reach using the virtual platform in 2020 has begun, in parts, to raise the quality of discourse. Regulators must consider making hybrid meetings a permanent part of the AGM process.

India is one of the rare Asian markets to move completely to a virtual AGM format in 2020, as the COVID19 lockdowns coincided with the AGM season. Most Asian markets – and several European markets too - continued to rely on a hybrid format of meetings (virtual presence accompanied by physical meetings). Even with virtual presence, some markets did not allow for a two-way interaction, making those logging in as mere spectators to the unfolding events. The difference for India was that a two-way communication was mandatory as part of its virtual AGM format.

Demonstrating the agility of corporate India, the shift to the virtual format was swift, as the AGM season coincided with the lockdowns. Corporate India was eager to move on and tackle the challenges at hand, and not delay holding the AGM (which related to the performance of the previous year). Instead of the usual outcry that accompanies immediate and radical changes mandated by regulators, stakeholders put their heads down and dealt with it. Depositories leveraged existing available large event-based platforms to host virtual AGMs for companies, while some technology companies developed their own solutions.

The power of the virtual AGM is reflected in how Reliance Industries Limited (RIL) has been able to leverage their Jio platform in 2020: the company was able to get over 300,000 shareholders to attend its 2020 AGM, compared to about 1,200 in its 2019 AGM. Shareholder attendance at RIL’s 2020 AGM is higher than the aggregate attendance of the remaining 99 of the top 100 companies. Detractors complain that RIL uses the AGM as a marketing platform for its products and services; the main business of a typical AGM is a side-show. Even if one were to agree with that contention, it does not take away from the fact that companies can increase shareholder participation using the virtual platform.

Virtual AGMs can perhaps increase the relevance of AGMs. Over the past few years, AGMs have been possibly losing their relevance, which is reflected in less than 1% of shareholders attending AGMs. Attendance at state-owned enterprises has declined faster than the rest. The fading away of its romance rests in three issues: one, because shareholders can cast their vote electronically in advance of the AGM, in most instances, the resolutions have already been decided upon prior to the AGM; two, the quality of questions being raised by retail shareholders have little to do with the business; three, the board’s dismissiveness given the quality of questions at AGMs and therefore perfunctory responses in several instances. In 2020, attendance dropped much more on account of two added complexities – bunching up of AGMs (more AGMs to attend is a single day), and the operational challenges of a virtual platform (having the required internet bandwidth and / or being tech savvy enough). The cynical will add that as ‘chai and samosa’ was no longer on the table, many saw no point in making that effort.

Both retail shareholders and boards need to move beyond the irrelevant. Extolling the virtues of the Chairperson in poetry or raising concerns over the pagination of the annual report are non-issues, but these have been a standard affair in most AGMs. Yet, this is changing to some measure with more informed shareholders participating through the virtual platform. In its 2020 AGM, a shareholder asked the board of Tata Consultancy Services Limited (TCS) how it addressed the issue of data security in an environment where employees were required to work from home. TCS’ Chairperson responded by expounding on their use of bots and other technology to monitor employees’ computers and emails for data security. A retail shareholder pushed for better gender diversity at Bharat Petroleum Corporation Limited’s (BPCL) 2020 AGM, and while another asked questions around depletion in the size of the board. While both these are relevant issues from an ESG perspective, BPCL’s board did not give them their due: the board did not address the issue of gender diversity, and responded that the board size was not as relevant as much as its quality, at a time when BPCL’s board composition was in violation of regulatory requirements (and continues to remain so).

Although TCS’ Chairperson replied to every single shareholder’s question, BPCL board’s response reflects the malaise of AGMs in India – in the habit of having listened to a series of pointless questions, the important ones get disregarded. Boards are misguided if they believe AGMs are attended only by retail investors. Foreign institutional investors (FIIs) attend AGMs in India, to get a sense of the board and the management. FIIs have accepted stewardship responsibilities well before this became a conversation in India. While FIIs have tried to engage with companies in India, their access has been limited to the investor relations team. This is unlike their experience in several other markets (including other Asian markets), where they are able to access not only the CEO, but also independent directors (audit committee members) with ease. Domestic institutional investors, on the other hand, tend to have better access to leadership within corporate India.

To ask questions of the board is a fundamental right of shareholders and voting by electronic means or postal ballot is not a substitute. The Bombay High Court in a May 2014 direction on the scheme of amalgamation of Wadala Commodities Limited with Godrej Industries Limited talked about e-voting, in terms of its directionality, as “finding some golden mean between the need for greater inclusiveness while yet retaining invaluable shareholders’ rights. I do not think it is possible to see these two as implacable enemies, forever antipodal. Discourse, even energetic discourse, is not just permissible; it is desirable. It is a fundamental adjunct of corporate democracy.

To this extent, allowing shareholders to participate using virtual platforms is a necessity. The Ministry of Corporate Affairs’ shift to a completely virtual AGM in 2020 has been successful. But the regulation allows holding virtual AGMs only till 31 December 2020, following which it will likely fall back to the provisions of the Companies Act 2013. While the Companies Act 2013 does not explicitly prohibit virtual participation by shareholders, it does not encourage it either: therefore, Infosys has been allowing shareholders to participate from different locations for a few years now, although they do not count for quorum from a compliance standpoint.

The Ministry of Corporate Affairs must make virtual AGMs a permanent part of the AGM process. As has been demonstrated by the success in several regional markets, making hybrid shareholder meetings (where shareholders are given the choice to either attend physically or participate using virtual platforms) mandatory is likely to have greater success. This will widen the scope of participation as much as it will, over time, improve the quality of the discourse.

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