Two of the mid-sized companies, DCM Shriram and Chalet Hotels, have witnessed some backlash from institutional investors on their proposed shareholder resolutions. However, both the companies have managed to have all their proposed resolutions passed mainly on the back of non-institutional shareholding, as per data released by proxy advisory firm IiAS. This is because institutional shareholders form a small portion of the overall shareholding in both the companies. DCM passed all its resolutions with nearly 70 per cent votes and Chalet managed to pass its resolutions with 95 per cent votes. 

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Data from IiAS shows that over 90 per cent of institutional shareholders or large funds have voted against three proposals of DCM Shriram with regard to the extension of a stock option scheme, amendment to it and secondary acquisition of shares under the employee stock options scheme. Similarly, 68 per cent of institutional investors have voted against the appointment of two independent directors of Chalet Hotels. The e-voting on the proposals by Chalet Hotels happened between May 7 and June 5. DCM had sought e-voting on its proposals between May 6 and June 4. The results were announced by both the companies on the next day of the close of their e-voting.  Also, the final voting percentage is calculated based on those who participated.

LIC is a major institutional shareholder in DCM Shriram while SBI Consumption Opportunities Fund, Sundaram MF, Nippon Life, HDFC Small Cap and ICICI Prudential are shareholders in Chalet Hotels. 

SEBI had come up with the concept of shareholder voting on proposed company resolutions to ensure that minority shareholders are not short-changed. Among all the non-promoter categories of shareholders, institutional shareholders in majority of the companies are most qualified since these shareholders comprise the likes of mutual funds, insurance companies and pension funds, and hence, they have a better ability to understand the resolutions. According to experts, when all proposed resolutions get passed despite huge opposition from institutional investors, it shows that some well-intentioned SEBI concepts can be made redundant in spirit if not in letter.

What opposing shareholders did not like in the DCM scheme

A report by IiAS says that they had advised shareholders to vote against DCM Shriram's proposed amendments to the stock options scheme since the company had not disclosed the amendments that it intended to make to align it with current regulations.

"We believe the company must make granular disclosures on the proposed amendments to enable the shareholders to exercise their vote diligently."

On the second resolution, DCM had proposed to extend the DCM Shriram Employee Stock Purchase (ESPS) Scheme to the employees/whole-time directors of the subsidiaries of the company at a 99.8 per cent discount on the prevailing market price.

"We do not favour ESPS schemes, where shares are granted at a significant discount of more than 20 per cent to market price. ESPS are ‘pay at risk’ shares that employees accept at the time of grant, which is protected if the shares are issued at significant discount to the market price. We believe there is no alignment between the interests of investors and those of employees. Since we do not support the initial scheme itself, we also do not support the extension of this scheme to the employees/whole-time directors of subsidiaries of the company," IiAS said in its recommendations.

Also, DCM Shriram had proposed to authorise a trust for secondary acquisition under DCM Shriram ESPS Scheme and approve the provision of money – up to 5 per cent of the aggregate of paid-up share capital and free reserves – to the trust for purchase of shares. "Since, we do not support the initial scheme itself, we also do not support authorizing the trust to shares from the secondary market and the provision of loan to purchase the said shares from the secondary market," IiAS said.

Why few shareholders voted against the proposals of Chalet Hotels

The company had proposed the re-appointment of independent directors Hetal Gandhi, Joseph Conrad D'souza and Arthur William DeHaast. Institutional shareholders polled 68 per cent votes to reject the re-appointment of Gandhi and D'souza. IiAs has termed the proposals of re-appointments against the "spirit of regulations."

"We consider Gandhi and D'souza as non-independent due to their long association of 22 years and 21 years with the company (respectively). Further, Gandhi is on the board of five listed companies, including Chalet. We believe that, as Managing Director of Tano India Advisors Private Limited, his responsibilities are equivalent to a whole-time directorship. Therefore, his high number of directorships in listed companies is not in keeping with the spirit of the regulation. If the company believes that the reappointment of D'souza will benefit the board, it must reappoint him as Non-Executive Non-Independent Director."

IiAs had recommended a vote against the reappointment of  William DeHaast on the reasoning of 'conflict of interest.'

"We do not consider him to be independent. Further, he is also on the board of InterContinental Hotels Group PLC, UK which is involved in a business similar to Chalet Hotels Limited. InterContinental Hotels group operates hotels in India under brand names Intercontinental Hotels and Holiday Inn Hotels; which could represent a conflict of interest," IiAS had said in its report.

Both companies did not respond to an email query. 

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