The ownership structure of Indian companies has had an outsized influence in shaping the country’s corporate governance architecture. For starters, around 65% of companies in the BSE100 are family-owned and run. This number only goes up as you move beyond the frontline indices. Shareholding data from the NIFTY 500 backs this up too - promoters held 54.5% of the equity shares back in December 2015, which rose to 58.9% by June 2020. Today, they still own about 51.0% of the equity. While this is a drop from the peak, it is still more than what institutional investors and all other shareholders combined, currently hold.

Reviewing the shareholder and voting outcome data for the NIFTY 500 shows an interesting pattern. Despite the checks and balances that regulators have placed, 64.4% of the votes are in favor of a resolution, 1.2% are against, with 34.4% abstaining. Ignoring the abstains, the support for resolutions jumps up to 98.15%, with just 1.85% dissent votes. This vote translates into 99.5% of the resolutions being approved.

Despite this there are numerous instances of resolutions with 100% of the institutional investors dissent, or even 40% of all investors dissent, but the promoters, with their majority ownership and vote, pull these across the finish line.

Given this, it is imperative that Boards consider adopting - or regulators enforcing - a shareholder dissent review mechanism. Under such a framework, if a resolution is approved despite significant shareholder opposition, the board will be required to formally engage with dissenting minority shareholders, understand their concerns, and either explain themselves more clearly, or take appropriate corrective actions.

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