1. 
Shareholder Activism
Raghu Babu G
27th April 2012

2. 1
Roster
 Why Shareholder activism
 Objectives of Shareholder activism
 What Shareholder Activism Can Do?
 Global Phenomena
 India – recent trends
 Evolving eco system
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3. 2
Why Shareholder Activism
 Minority shareholders are not protected
 Expropriation of minority shareholders
 No independent director and auditor
 Lack of monitoring function in the company
 Agency problem & moral hazard of management
 Shareholder’s value is ignored
 Controlling shareholder or managements are involved in self-dealing
 Nepotism in the management
 Weak enforcement of laws & regulations
 Laws are sleeping in the book
 Market monitoring function is weak
 Institutional investors are passive due to conflict of interest
 Government can not do everything
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4. 3
Why Shareholder Activism
 Poor Corporate Governance Practices
 Company assets are siphoned for the family
 Illegal or unfair related party transactions
 Cross debt guarantee, hidden debt
 Sales and purchases among affiliated companies
 Financial subsidies for related parties: Loan
 No Transparency & No Accountability
 Disclosures and auditor’s reports are not credible
 Controlling family and management are not accounted for mis-
management
 Poor corporate governance creates corruptions
 Improving corporate governance is one of effective way to fight against
corruption in the society
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5. 4
Objectives of Shareholder Activism
 Independent Watchdog on the Management
 Protect Shareholder’s Value
 Stop profit-siphoning management practice
 Stop subsidies to affiliated companies
 Stop illegal intra-group transactions
 Ensure Transparency & Accountability
 Independent management from controlling shareholder
 Outside directors representing minority shareholders
 Fights against Corruptions
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6. 5

Aspects of shareholder activism
• Proxy voting
• Dialogue
• Resolutions
• Divestment
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7. 6
What Shareholder Activism Can Do?
 Monitoring and reporting corporate activities
 Constructive talks with management before taking actions
 Exercise shareholder rights
 Attending shareholder meetings
 Proposing agenda at the shareholders meetings
 Electing directors
 Proposing outside director candidate
 Proxy fights
 Taking legal actions
 Filing civil lawsuit: Derivative actions, Class-Actions
 Filing criminal investigation
 Proposing and lobbying for legislation
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8. 7
Global Phenomena
 Cognizant, minority shareholders in dispute over
Board
 Los Angeles County Employee Retirement
Association or Lacera - to make it mandatory for all
board directors to be elected annually
 John Chevedden has forced Cognizant to introduce a
proposal to empower investors with significant
ownership to call for a special shareholder meeting
 Shareholders reject Citi CEO Vikram Pandit’s $ 15
million compensation package in non-binding vote.
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9. 8
Indian scenario
 Coal India Vs. The Children’s Investment Fund.
 Merger of Sesa Goa and Sterilite Industries.
 Akzo Nobel India – Merger of 3 unlisted firms of
Promoters.
 Veritas, Candian research firm raised corporate
governance issues and accounting practices at
Reliance Industries, Reliance
Communications, Kingfisher and most recently DLF.
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10. 9
Evolving eco system
 SEBI mandated AMCs to disclose their general
policies and procedures for exercising the voting
rights in respect of shares held by them.
 Emergence of Proxy Voting Advisory Firms
 Institutional Investors Advisory Service (IIAS)
 InGovern Research Services
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11. 10
Role of proxy voting advisory firms
 Vote Recommendations
 Corporate Governance Research and Scorecards
 CG Consulting and Education
 Risk Monitoring
 Directors’ and Executive Compensation Analysis.
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12. 11
Proxy firms – recent recommendations
 Fortis Health Care
 Hexaware
 Divis Laboratories
 Rain Commodities
 Piramal Healthcare
 ACC
 Gammon India
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13. 12
Thank you
raghu@rna-cs.com
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