The Proxy Co Directive Almost ousted Parekh

Mumbai: For more than three decades, HDFC has been synonymous with Deepak Parekh. Its equation with investors, decision makers and customers was considered a key success factor behind the HDFC group companies. For many investors, the impact of Parekh's exit on the group was a major concern.

On Monday, nearly 22.6% of investors (mainly foreign institutional investors, or FIIs) voted against the renewal of Parekh's mandate on the advice of a consulting firm, Institutional Shareholder Services (ISS) . The firm said that Parekh (74), present on eight boards of directors, was becoming increasingly rare by involving in many companies. Given the decision to rename Parekh was a special resolution, a vote below 75% could have forced Parekh to leave.

Monday's AGA showed the risk in the vote scheduled by the depositories, who act on behalf of foreign portfolio investors (IPF), entirely based on the proxy firms' recommendations. Two senior HDFC executives, former RBI governor Bimal Jalan, and chartered accountant Bansi Mehta, who were due to be re-elected, decided to resign after ISS asked investors to vote against them. In the case of Jalan, ISS said that it had attended less than 75% of the meetings. He also advised to vote against Mehta and Parekh as they are present in more than six councils.

"Proxy companies 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 pretty good, "said Shah Nilesh, MD, Kotak Mahindra Asset Management.According to Shah, these companies are not able to appreciate the nuances of certain resolutions." For example, continuity of directors is essential and control promoters is necessary. If Ratan Tata is president of 10 companies in the Tata group, it does not reduce the value of the group – this is in addition to that. If, God forbid, the resolution against Parekh had pbaded, the wealth of the shareholders would have been destroyed, "said Shah.

According to Mr. Parekh, this kind of scheduled vote is a challenge that he faced five years ago as well. In addition, when he was appointed to Vedanta's board of directors, Standard Life voted blindly against the proposal, although the company is HDFC's life insurance partner and a major player in the life insurance industry. funder of Parekh.

Fund managers say that custodians do not make subjective decisions to avoid explaining why they depart from the recommendations of professional advisers, to which investors have subscribed. But the standardized voting approach sometimes creates problems in companies with large FII holdings. In most private companies, this is not a major risk because the promoters vote. However, in an institution like HDFC, there is no discernible promoter and it is the proxy firms that eventually call the projectiles.