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The Proactive Shareholder
The season for Annual General Meetings for FY 2011-12 have begun and so is the time for dividends for the shareholders. The regime of shareholders looking at lucrative dividend numbers or the snacks at General Meetings is the story of the past. The shareholders today are required to be more proactive in the sense that they should force their companies to follow good governance practices and look at long term value of the companies.
This article highlights a few aspects where the shareholder can contribute to the General Meeting:
1. Rotation of auditors
The Companies Bill mandates the rotation of auditors at regular intervals and a cooling period of 3 years before the same auditor is appointed. Also rotation of audit partner is mandatory. This is a proposal to ensure that fresh eyes scrutinize the financials. The shareholder can sniff the red flag when the same auditor/ audit firm is auditing the accounts of the company for past 10-15 years range. He can ask the company to change the audit firm. In a recent case, the General Meeting of a company was adjourned for non-adoption of accounts. In the notice to adjourned meeting, there was a resolution seeking appointment of a different auditor (which was not there in the original notice). This sends out an alert message to the proactive shareholders to question the company for the U-turn in reappointment of the existing auditor.
2. Independent Directors
The Independent Director is expected to add value to the decision making of the Board from an independent perspective. But his independence is lost when he is associated with the company for over 3 decades. One cannot be expected to be independent for such a long period. Under Clause 49 of the listing agreement, SEBI has mandated disclosure of the details of a director seeking reappointment at a General Meeting. The shareholders can look for this section in the Annual report and check the tenure of the Director in the company, his qualifications and the like and analyse if he is truly independent. Otherwise, vote against the resolution.
3. Corporate restructuring
Recently Indian corporate has seen a plethora of mergers/ amalgamations being opposed by the shareholders. Also the shareholders are questioning the management about the pricing adopted by Coal India and opposed the corporate restructuring of Vedanta Inc. When the notice for General Meeting is received, if a corporate restructuring is proposed, check the compatibility of the companies and the value addition to the business. Also check for expert opinions flashing on the internet. Take an informed decision. Failing which, the corporate India may end up with results like the merger of Air India and Indian Airlines.
4. Red flags in Financial statements
The auditors are expected to sniff out irregularities in financial statement and issue a qualified report. The Directors’ are required to explain the qualification in Directors’ report. Check for such qualification and the management response for that. Apart from this, check if the compensation of the top management is in line with the profits made by the company. Question the management if the COO/ CEO compensation sky rockets when the Bottom line of the company has nosedived.
Padma Shenoy U
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