Public Equities

Voting Against Management Following Board Governance Concerns

2 min read

We engaged with a mall developer and operator based in India to discuss our concerns regarding the independence of the company’s board.

The company currently has three independent directors who have been on the board for periods greater than 10 years.

This has led to accusations of entrenchment, and concerns over the independence of the members. We wanted to engage with the company to understand what it is doing to hire new board members and restore independence.

Following our engagement with the company, the Chief Financial Officer explained that rules surrounding independent board members of tenures greater than 10 years came into existence in 2014, and the company has taken an interpretation of this rule from this date, rather than from the appointment date. The company has been receptive to our concerns and assured us that new independent directors will come on board in the months ahead. We were also assured that there would be no extensions to existing tenures. However, we considered this interpretation to be ambiguous and voted against management for appointment/re-election of directors until board independence is restored. We will continue to monitor the progress of this engagement and communicate our expectations for progress.

Although this resolution was voted down, approximately 25% of institutional owners voted in favour of it. This is a significant result as such activism is in its early stages In India. Indian businesses are mostly family owned and founder stake is close to majority in many cases—in this case it is approximately 46%. In addition, retail investors tend to either abstain on votes or vote in favour, meaning it is difficult to defeat a proposal in India. We believe management will consider a 25% rejection by institutional voters to be significant.

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