Proxy company’s directive nearly ousted Deepak Parekh

MUMBAI: For over three decades

HDFC group

has been synonymous with Deepak Parekh. His equation with investors, policymakers and customers was seen as a key success factor behind HDFC’s group companies. For many investors, an important concern was what impact would Parekh’s exit have on the group.


On Monday shareholders came close to finding this out as 22.6 per cent of investors (largely foreign institutional investors, or

FIIs

) voted against Parekh’s reappointment on the advice of a proxy firm, Institutional Shareholder Services (

ISS

). The firm said that Parekh (74), with a presence on eight boards, was spreading himself thin by being involved in many companies. Given the move to reappoint Parekh was a special resolution, a vote below 75 per cent could have compelled Parekh to exit.

The

AGM

on Monday has shown the risk in programmed voting by custodians, who act on behalf of foreign portfolio investors (FPIs), based entirely on recommendations of proxy firms. Two senior directors of HDFC, former RBI governor Bimal Jalan and chartered accountant Bansi Mehta, who were up for reappointment, decided to resign after ISS asked investors to vote against them. In the case of Jalan, ISS said that he had attended less than 75 per cent of the meetings. It also advised voting against Mehta and Parekh as they are present in more than six boards.

“Proxy firms use a standard template for all companies: If you are too old, you are not good enough. If you are on too many boards, you are not good enough,” said Nilesh Shah, MD, Kotak Mahindra Asset Management. According to Shah, these firms are not able to appreciate nuances of certain resolutions. “For instance, continuity of directors is critical and promoter control is necessary. If Ratan Tata is chairman on board of 10 Tata group companies, it does not reduce the group value — it adds to it. If, God forbid, the resolution against Parekh had gone through, shareholder wealth would have been destroyed,” said Shah.

According to Parekh, this kind of programmed voting is a challenge that he had to face five years ago as well. Also, during his appointment on the board of

Vedanta

,

Standard Life

had blindly voted against the proposal, although the company is HDFC’s partner in the life insurance business and a strong backer of Parekh.

Fund managers say that custodians do not take subjective decisions to avoid explaining why they deviate from recommendations from professional advisers, to whom the investors have subscribed to. But the standardised approach to voting sometimes creates problems in firms with large FII holdings. In most private companies, this is not a major risk because promoters get to vote. However, in an institution like HDFC there is no discernible promoter and it is the proxy firms that end up calling the shots.