Shriram Transport Finance Corporation Ltd: Do Proxy Advisors Really Protect Non-promoters’ Interests?

Abstract

Research Question:

What is the role of Proxy Advisory Firms in protecting the interests of the non-promoter shareholders?

Links to theory:

This case study demonstrates how agency cost type 2 may lead to a conflict of interest between the promoters and the financial institutions. It also takes into consideration how the information asymmetry can be alleviated using proxy advisory services.

Phenomenon studied:

The case study explores the role of proxy advisory firms in influencing the votes of non-promoter shareholders at a general body meeting and its impact on the passage of resolution.

Case Context:

The case explores the role of shareholder activism in general and proxy firms in particular to protect the interests of minority shareholders at STFC where financial institutions have substantial stake vis-a-vis the promoters.

Findings:

The case study findings suggest that proxy advisory firms have now earned the confidence of the financial institutions and non-promoter investors. This adds vital fire power to the shareholder activism movement in India. However, the company’s stance that the report was based on quantitative factors and Puneet Bhatia’s contribution has been ignored calls for a more robust method of arriving at recommendations. The role of TPG in directing Puneet not to join should also be commended.

Discussion:

The case study examines in detail the growing influence of proxy advisory firms on voting by financial institutions in annual general body meetings. It raises the issue of whether quantitative metrics such as number of meetings attended can overshadow the qualitative inputs and contributions made by a director. The need for financial institutions to think beyond their interests and consider actively recommendations by proxy advisory firms is also highlighted. Are minority shareholders’ concerns now being better addressed in annual general body meetings is another development the case throws light on. Corporate governance norms in the context of roles and duties of directors is also touched upon.