Non performing Directors and Reappointment of director barred by minority shareholders
Channel: R V Seckar
Date: 24/08/2020

Non performing Directors and Reappointment of director barred by minority shareholders          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 ATTENDANE 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.
Courtesy : Business Standard