By Shilpy Sinha ET Bureau
MUMBAI: US proxy advisory firm ISS had advised investors to vote against the resolution to reappoint Deepak Parekh as nonexecutive chairman of HDFC Ltd as he is on the boards of eight other companies and time constraints may prevent him from discharging his duties effectively.
“In addition to… directorship at the company, Deepak Parekh currently serves as directors of eight public companies,” said ISS Proxy Analysis & Benchmark Policy Voting Recommendations.
The firm said investors may be concerned whether directors are able to fulfill their fiduciary responsibilities when they are serving on many boards. “While the demands of each board will vary, and the capacity of each person will vary, holding the equivalent of more than six directorships with publicly listed companies may make it challenging for a director to devote adequate time to the affairs of each company,” it said.
Apart from HDFC, Parekh is on the boards of DP World Ltd, Vedanta Resources Plc, Fairfax India Holdings Corporation, HDFC Standard Life Insurance, GlaxoSmithKline Pharmaceuticals Ltd., Siemens and The Indian Hotels.
Some international proxy advisory firms advise against the appointment or re-appointment of a director who is on more than five public limited companies.
Their rules state that any director who sits on the boards of more than five public companies is construed as being ‘over boarded’ and thus faces disqualification.
Many institutional investors across the globe tend to vote on the basis of recommendations by proxy advisory firms. Thus, decisions on whether to vote for or against various resolutions by shareholders at the annual general meetings are increasingly driven by the proxy advisor’s recommendations.
Also, voting is largely done by the custodians on behalf of institutional investors. Non-executive directors, above the age of 75, need shareholder support through a special resolution, according to the Uday Kotak corporate governance report that has been accepted by the Securities and Exchange Board of India.
Shareholders of HDFC on Monday voted to reappoint Deepak Parekh as director but nearly a quarter of the shareholders, 22.64%, voted against him. Under special resolution, more than 75% is required to continue as director on board. Parekh got 77.36% votes in his favour.
“Re-appointing directors on boards of most promoter-owned companies is not a big issue as they have large shareholding and getting 75% votes for any resolution is not a difficult one,” said the source. “In case of HDFC, there is no promoter with 100% shares listed and yet Mr Parekh got 77.36% votes in favour and 22.64 % against.”
Indian proxy advisory firms had advised voting in favour of Mr Parekh. “We did not oppose the appointment of Parekh,” said J N Gupta of SES, a proxy advisory advisory firm.
However, Gupta’s firm was against continuation of JJ Irani as director as he has been associated with the company for more than 10 years and owns shares of more than Rs 5 crore. “Shares worth more than Rs 5 crore are material in nature and may affect the independence of an independent director,” said the firm in a report.
Parekh has been at the helm of HDFC for close to three decades. Under his leadership, HDFC has emerged as the largest and most stable mortgage lender. The company has also expanded into newer segments across banking, life and general insurance, asset management, affordable housing and education loans.
“The spirit of the Kotak committee recommendations is that there should be a younger board. Section 196, 3(a) of the Companies Act 2013, has that Executive Directors above the age of 70 years can be in continuance of employment only if shareholders approve by a special resolution,” said Shriram Subramanian, MD, InGovern Research Services. “Our view is that Indian companies need younger boards and there should be appropriate board refreshment.
If there is a board where many directors are above 75 years, we look at the average age, the reason and contributions made by the board members and make appropriate recommendations,” JJ Irani is 75 years old while Deepak Parekh is 74. Earlier this year, two directors — BS Mehta and Bimal Jalan — had stepped down from the board.
“The only fear that weighed against him was the fear of succession planning,” said the head of another proxy advisory firm. “If you look at the board of HDFC, average age of the total board was 75 years and average age of independent directors was 80 years.”
Experts believe that there is a growing need for greater convergence of governance norms across advanced and emerging markets and companies will need to engage more proactively with proxy advisors as well. “Globally, there is growing consensus that proxy advisory firms also need to be regulated,” said an expert.
Foreign institutional investors own over than 72% in the mortgage mortgage lending company.
Some large investors include Aberdeen Asset Management, Oppenheimer Funds and GIC Singapore. “We didn’t vote against and in addition we believe Deepak Parekh is doing a good job,” said the spokesperson for Aberdeen Standard Investments in an email response to ET’s query. Shares of HDFC fell 1.64% to Rs 1,994.75 on the Bombay Stock Exchange.
(With inputs from Sanam Mirchandani)
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