Exercise Your Rights: A Guide to Educate, Empower Indian Investors

CFA Institute, in collaboration with the Indian Association of Investment Professionals (IAIP), has released An Investor’s Guide to Shareholder Meetings in India, aimed at educating shareholders about their roles, rights, and responsibilities and how to exercise them at shareholder meetings. The guide was unveiled at the Bombay Stock Exchange (BSE) by BSE Managing Director and CEO Ashish Chauhan, followed by a panel discussion with industry experts.

You are probably wondering about the rationale behind this initiative. Two main observations motivated the creation of this guide:

First, there is a general lack of involvement by minority shareholders and investors in India, due to a lack of corporate governance awareness and a lack of influence. As a result, we’ve seen the following trends:

• Retail shareholders in India do not participate or express their views at shareholder meetings — either they do not know how, or feel it is pointless. Their negligible shareholding does not give them power to affect the outcomes of corporate decisions, and they are usually ignored by the controlling shareholders.
• Until recently, institutional shareholders have chosen to remain silent or simply vote with their feet (exit their investment) when problems arise. Although this trend is changing as institutional investors realize the importance of monitoring and exerting their perspective, there is a long way to go.

Secondly, as explained in detail in my earlier blog post, we’ve seen a number of significant changes in India’s regulatory framework in the last 12 months:

• The New Companies Act, 2013, introduced significant corporate governance changes to all companies incorporated in India.
• The Securities and Exchange Board of India revised and overhauled Clause 49 of the Equity Listing Agreement that deals with the corporate governance norms for listed companies in India to ensure that the listing rules are aligned with the New Companies Act, 2013.

These changes signal two important outcomes that will improve corporate governance:

1. Regulators are now using disclosure as an enforcement tool; publicly disseminating information will create comparability, thereby fostering an environment of competitive ethical behavior that serves shareholders and the corporate governance agenda.
2. Minority shareholders (both retail and institutional) will gain greater power and rights.

The question is how can we encourage investors to engage more effectively with companies and hold management accountable for better disclosure and transparency?

For a start, shareholders need to understand these new rule changes and apply them.

That’s why CFA Institute and IAIP have developed this guide: to help investors understand their rights and what these new rules, regulations, and corporate governance reforms mean to them.

The guide describes:

1. Types of shareholder meetings in India
2. Types of resolutions put to vote in shareholder meetings
3. Activities, procedures, and rules of etiquette of the meetings
4. Rights of shareholders — what they can expect and demand

The guide has a dedicated a section on recent regulatory provisions, company’s obligations, and global best practices relating to these key items. More importantly, the guide highlights 11 important resolutions that are generally key items on the agenda of shareholder meetings, and how to research these key items so that investors can analyze information before voting on the resolutions.

This guide encourages minority shareholders to participate in shareholder meetings, to ask the right questions of management, and to cast their votes and make more informed decisions. Only then can minority shareholders make their voices heard and shape better outcomes at shareholder meetings.

Photo credit: iStockphoto/EXTREME-PHOTOGRAPHER