The recommendation of the international proxy advisory firm, Institutional Shareholders Services (ISS), asking shareholders to vote against the proposal of 28-year-old Anant, the youngest son of Mukesh Ambani, for appointment on the board of Rs.9.75 lakh crore Reliance Industries may not look entirely unjust. Few will deny that Anant is too young and inexperienced to be one of the key drivers of RIL, India’s largest company by market value and one of the world’s top 100 firms by Fortune ranking. “A vote against this resolution is warranted as Anant Ambani’s limited leadership/board experience of around six years raises concerns on his potential contribution to the board,” ISS said in a note earlier this month, which it shared with Bloomberg.
ISS is majority-owned by Deutsche Borse Group along with Genstar Capital. It is a leading provider of corporate governance and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporations, globally. Mutual funds, hedge funds and similar other fund organisations that own shares of multiple companies pay ISS to advise (and often vote their shares) regarding shareholder votes. It is the largest such firm, with over 61 percent of the business. Proxy advisory firms guide investors on how they should vote at corporate shareholder meetings as institutional investors may not have the resources to vote knowledgeably on the thousands of shares they may own.
In fact, ISS and Glass Lewis & Co. LLC are known to be the world’s two major proxy advisory firms. Earlier this year, both the firms issued their updated proxy voting guidelines for the 2023 proxy season. These policy updates provide early insight into the upcoming 2023 proxy season due to the influence that the proxy advisory firms can have on voting results for proxy agenda items. Both ISS and Glass Lewis added new voting guidelines in response to the Delaware General Corporation Law amended Section 102(b)(7), which authorises corporations to limit or eliminate personal liability for certain officers for breach of fiduciary duty of care claims.
Companies that are considering adopting such provisions in their charters should consider these new policies when drafting and presenting their proposals. ISS will vote case-by-case on proposals to adopt officer exculpation provisions, considering the stated rationale for the proposed change. Glass Lewis will closely evaluate proposals to adopt such officer exculpation provisions on a case-by-case basis and will generally recommend against such proposals, unless the board provides a compelling rationale for the adoption, and the provisions are reasonable. Environmental issues took centre stage in the 2022 proxy season, with a record number of shareholder proposals focused on this topic.
The Ambani family, the promoter group, reportedly holds some 50.39 percent of the company’s total shares of approximately 6.44 billion. The remaining portion of the total shares are held by the public, including institutional bodies and corporate entities. The Life Insurance Corporation of India (LIC) is the largest non-promoter investor in the company, with 6.49 percent shareholding. A media report said RIL’s founders own over 41 percent shares in the company, the single largest voting chunk. Foreign and local institutions own close to 40 percent. The latter often vote on the basis of recommendations from proxy firms. Among the company’s major stakeholders are its creditors. Reliance’s standalone gross debt in FY23 was Rs.2.15 lakh crore. Consolidated net debt stood at Rs 1,10,218 crore at the end of March compared with Rs 35,815 crore a year earlier.
Incidentally, the ISS objections echo an earlier recommendation from Mumbai based Institutional Investor Advisory Services (IIAS), which said that “at 28 years of age,” the appointment of Anant Ambani “does not align with our voting guidelines”. The IIAS supported the proposals seeking to elect two other Mukesh Ambani children — Isha and Akash — on the board. Reliance told the proxy companies that Anant has “the relevant experience and maturity to add value to the board deliberations.” Today’s RIL is a huge corporate conglomerate. It runs a host of businesses, from the exploration and production of oil and gas to the manufacture of petroleum products, polyester products, polyester intermediates, plastics, polymer intermediates, petro-chemicals, synthetic textiles and fabrics to telecommunications, retailing and exports. Reliance’s exports during 2022-23 jumped 33.4 percent to Rs 3.4 lakh crore.
Not all big corporate promoters’ children and grandchildren have been lucky to get easily into the board of flagship entities. Ghanshyam Das Birla asked his most favourite grandchild, Aditya Vikram Birla, an MIT graduate, to run sickly Eastern Spinning Mills in Calcutta (now Kolkata) on his return to India in 1965. Aditya Birla had put the group’s sinking rayon and textile business back on track and launched massive expansion in South East Asia. Life was not easy for Ratan Tata either. A Cornell University graduate, Ratan Tata joined the group in 1961, working on the shop floor of Tata Steel. After gaining experience in a number of Tata group businesses, he was made director in charge of rather sickly National Radio and Electronics (Nelco) in 1971. He became chairman of Tata Industries a decade later. In 1991, Ratan Tata succeeded legendary JRD as Tata Sons chairman.
Succession has always been a big issue before family-run public companies. History will show that companies going to their promoters’ third or fourth generation siblings have rarely achieved the desired goal. Enterprise control had to be split to accommodate the siblings. Most of India’s corporate leaders in the 1950s and 1960s have turned laggards and sick. Several of them changed hands. There are several big and popular companies where promoters are no longer in physical control. They are totally managed by professionals. Today, India’s largest corporate holding company, Tata Sons Limited, is headed by Natarajan Chandrasekaran, a top professional. Last financial year, the revenue of Tata companies, taken together, was worth US$150 billion. Among other large private corporate entities run independently by professionals are: ITC Limited, ICICI Bank, Larsen and Toubro, Yes Bank, IDFC Limited, Federal Bank, UTI Asset Management Company and Ujjivan Financial Services. (IPA Service)