Minority shareholders of Akzo Nobel who put up a valiant fight against the merger of group companies lost at the end by a wafer thin margin. The MNC was merging three group companies with the listed company and the minority shareholders were protesting the valuations given to these companies. UTI did not vote and the reason attributed to the same was the absence of a CEO in the company.
The decision of UTI not to vote cost the minority shareholders the battle as they failed to get the required votes to block a resolution enabling the merging of the group companies. Had UTI voted along with the other minority domestic institutions, the resolution would have gained the required votes to be blocked.
This action or no stand taken by UTI or for that matter by any institution again opens up the debate on mutual funds or domestic institutions and their stand on key issues. It has been seen that domestic institutions abstain from taking any stand on such issues. At best they have been seen to exiting the company and selling their shares. Selling of shares is no solution as the institution has a moral right to its unit holders to act in their best interest, and that best interest can only be achieved or served by taking a stand. This certainly cannot be achieved by selling shares or being neutral.
Shareholder activism has been dealt a body blow by this actionof a mutual fund as this has been against the interest of minority shareholders. This would lead many retail investors to believe that their interest is best taken care of by being shareholders directly and not through mutual funds.
There have been suggestions/directives from the regulator that the fund must take a stand and vote on crucial matters and post the same on their website. At best this remains so only on paper. The regulator must now lay down some more norms where there should be penal action against a fund who abstains in such crucial matters and also allow the unit holders of the scheme to take action against the fund. The simple answer of yester years would be you don’t like what we did; sell or exit the scheme is no longer valid either from the fund manager or the unit holder. It’s time the regulator takes firm action on this matter as going forward there will be many cases where minority shareholders would have to stand up and fight for their rights against MNC’s and other managements.
One hopes this is an eye opener for one and all and the unit holders of the particular scheme who were apparently involved in this defeat of minority shareholders be taken to task. The fund manager concerned should be asked his stand and what he did on the issue. It would be interesting as to what the fund writes about this stand on their website.
Anyway let’s hope the management of Akzo Nobel realises its narrow victory on a case of abstention by a fund on technical ground and respects the sentiment echoed by minority shareholders. It would be important for them to appreciate the resentment against the same and one hopes that in their proposal for share buyback from minority shareholders and review of the royalty arrangement, they are fair and just. Though the minority shareholders have lost the case they have won by uniting and demonstrating their power. This should also force mutual funds to become more active in safeguarding the interests of their investors.
Though minority shareholders lost they have won a moral victory simply because they came so close and lost because of abstention. The icing on the cake would be if minority shareholders are given a fair price on the buy back.
