Non performing Directors and Reappointment of director barred by minorit...

SHAREHOLDERS OUST TPG'S
BHATIA FROM SHRIRAM TRANSPORT FINANCE BOARD

REAPPOINTMENT OF DIRECTOR IS
BARRED BY MINORITY SHAREHOLDERS

Most proxy advisory firms
had recommended ‘against’ vote on the resolution, raising red flags over his
poor attendance at board and other committee meetings

Minority shareholders of
Shriram Transport Finance Company (STFC) overwhelmingly voted against a resolution to reappoint private
equity major TPG Capital Asia’s co-managing partner and India head Puneet
Bhatia as a board member.

This makes it a rare
instance of public shareholders coming together to oust a high-profile India
Inc board member. The issue also highlights the growing scrutiny by investors and voting advisory firms
of the performance of board members.

RESOLUTION FOR REAPPOINTMENT
OF DIRECTORS

Vehicle finance company STFC
got shareholders’ approval on all the seven resolutions it floated at the
annual general meeting (AGM) on Thursday, barring the one “to appoint Puneet
Bhatia, who retires by rotation as a director.”

While the resolution got 100 per cent promoter votes,
over 83 per cent of public shareholders, mainly institutional investors, voted
‘against’. Overall, the resolution
got only 43.1 per cent votes, failing to reach the 50 per cent threshold
required to pass an ‘ordinary resolution.

PROXY
ADVISORY FIRMS IN ACTION

Most proxy advisory firms
had recommended ‘against’ vote on the resolution, raising red flags over his poor attendance at board and
other committee meetings.

“No concern regarding
profile and time commitment. However, director (Bhatia) has low attendance,”
said Stakeholders Empowerment Services (SES), in its voting advisory note.

POOR
ATTENDANCE BY THE DIRECTOR

In 2019-20, Bhatia attended
only three of the six board meetings held by STFC, where he served as
non-executive director. Also, his attendance in audit committee and corporate
social responsibility meetings was just 40 per cent and 33 per cent,
respectively.

 “A director is no more an ornament
for the company or a badge for an individual.

BOARD ATTENDANCE IS SEEN AS
A SURROGATE MEASURE OF BOARD-LEVEL PARTICIPATION

Investors expect directors
to be more engaged with companies whose boards they serve on. In the absence of
any parameter on this, board attendance is seen as a surrogate measure of
board-level participation,”

Voting advisory firms expect a director to
attend at least 75 per cent of board meetings.

STFC’s management was
batting for Bhatia’s reappointment despite his sub-par attendance.

IT
IS UNFAIR SAYS STFC

“It would be unfair to
arrive at any judgement or vote against recommendation solely based on the
guideline that he did not attend 75 per cent board meetings of STFC in FY
2019-20. This will not be in the larger interest of shareholders of the
company,” STFC had said.

Justifying his
reappointment, the Chennai-based firm had said

“Bhatia has made significant
contributions for success and excellent performance of the company. The management has highly benefited
from his association, guidance and advice through discussions and deliberations
on strategic matters.”

Voting advisory firms are
often criticised by companies for strictly following quantitative metrics such as attendance, age and number of
director positions held.

In 2018, the issue had come
to the fore after some global voting advisory firms had recommended ‘against’
vote on HDFC’s resolution to re-appoint Deepak Parekh as director as he held board positions in eight
other companies.

Besides heading TPG Capital
Asia, which manages $6 billion in assets, Bhatia serves as director in about a
dozen other entities. Before joining TPG in April 2002, Bhatia was head of GE
Capital India, another private equity. He had joined STFC’s board as nominee
director of TPG in 2006 after the PE firm acquired an indirect stake in STFC.

LESSONS
LEARNED

·    
This highlights the growing scrutiny by
investors and voting advisory firms of the performance of board members.

·     A
director is no more an ornament for the company or a badge for an individual

·     Board attendance is seen as a surrogate
measure of board-level participation

·     Market
watchdogs expect a director to attend at least 75 per cent of board meetings

·     On
the Company side , it is argued that we should not see alone the percentage of
attendance but we have to see the contribution of director to the growth of the
company.

·     One
should not focus  f quantitative metrics
such as attendance, age and number of director positions but one should look
into the significant contributions for success and excellent performance of the
company by such director.