You are here: Home » Opinion » Editorial » Editorials
;
Business Standard

Small shareholders demand seat at Alembic board

Corporate governance experts claim it could trigger a trend

Sohini Das & Sudipto Dey  |  Ahmedabad/New Delhi 

Small shareholders demand seat at Alembic board

Shareholders demanding a board seat at Alembic, the oldest pharmaceutical firm in the country, to ensure better returns could trigger a similar trend elsewhere, said proxy advisory firms and corporate governance experts.

“We are going to see small shareholders increasingly use this mechanism to voice their concerns,” said Shriram Subramanian, managing director of proxy advisory and corporate governance firm InGovern Research Services.

“Such things happen quite often in the US; this is something new in India,” he added.

Another proxy advisor firm, Institutional Investor Advisory Services (IIAS), said this case will define the equation between companies and their shareholders, but more importantly, assess the protection that regulations offer the small investor.

“While small shareholders have attempted to get board seats in the past through this route, this is possibly one of the first cases where a set of sophisticated, discerning shareholders are leveraging this regulation,” it added.

Subramanian, however, said this would require a lot of effort, time and money.

On July 12, Alembic received a notice from Unifi Capital, a portfolio management company, proposing Murali Rajagopalachari’s name as a small shareholders’ director under Section 151 of the Companies Act 2013.

Small shareholders (under the banner of Unifi) are trying to get their nominee appointed to the Alembic board. However, sources in the investor community said that most of these minority shareholders (around 440 of 1,000) were “created” in the last three days.

The initial plan of a group of small investors was to move a resolution to appoint Rajagopalachari to the board at the company’s annual general meeting (AGM) on July 28. However, this is now off the list of resolutions to be put to vote at the AGM. The voting would now happen through postal ballot.

Share prices of both Alembic and Alembic Pharma rallied in the bourses on Monday. Share prices of Alembic ended the day’s trade up 7.7 per cent at Rs 43.25 a share, thanks to shareholder activism. Shares were up 11 per cent in the morning session. Alembic Pharma shares, too, were up marginally.

Alembic de-merged Alembic Pharma in 2011 with the intention of pursuing growth in formulations and export businesses. The holding company, Alembic, has interests in real estate (it has unused land assets), too. It also has a market capitalisation of Rs 1,190 crore, but holds 30 per cent in Alembic Pharma, which has a market capitalisation of a little over Rs 10,304 crore. Many small shareholders feel the share is undervalued and there is potential to unlock it.

While Unifi Capital did not answer e-mails sent to them, they are estimated to have around 3 per cent stake in Alembic. This could not be verified.

A source close to the company, who did not want to be named, presented a different picture: “Unifi is trying to misuse a provision in the Companies Act, as it wants mirror shareholding in Alembic Pharma for Alembic shareholders. This would be unfair for Alembic Pharma shareholders.”

The company could, however, take recourse to technical grounds for refusal to appoint such a director, said legal experts.

“It might say the director proposed by the small shareholders does not meet requirements and eligibility criteria of an independent director under law,” said Lalit Kumar, partner, J Sagar Associates.

An IIAS statement said, “the board has discretionary powers — and not absolute, as many argue, and may consider quashing Murali Rajagopalachari’s appointment as a small shareholders’ director. But, these discretionary powers are given to the board to protect the company against frivolous agendas, or incompetence, or both”.

The proxy advisory firm said for the board to use these discretionary powers to turn down a genuine agenda will be a misuse of the regulatory headroom it has been provided.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.


We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, July 24 2017. 23:16 IST
RECOMMENDED FOR YOU