LIC whines about board appointments but doesn't vote against them

Or how the kids get dealt with kid gloves

LIC is just a big ol’ cutie.

I had intended to share the survey results after my previous post but I couldn’t (sorry). So, please take the Boring Money reader survey if you haven’t yet. This really is the final call. Survey results next week.

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Here’s a fun piece by Mint from last month:

Founders of public companies naming their scions as senior executives or board members may find the going harder as the passing of baton comes under greater scrutiny from the world’s biggest public money managers, including Life Insurance Corp. of India (LIC), the country’s largest domestic institutional investor.

LIC expressed its unhappiness over 12 proposals pertaining to the appointment or reappointment of the next generation of founders in 11 promoter-led firms between January 2022 and 30 September 2023, according to a Mint review of LIC data on voting records.

Every year shareholders of a company get the chance to vote on a few standard things:

1. Appointments. Board members, directors, executives.

2. Some operational stuff. Executive salaries, fundraising plans, buybacks, mergers, etc.

This is honestly really boring stuff. Sure, sometimes (1) can get interesting. If a particular shareholder buys too much stock of a company, they might want to kick out the board members or the CEO and it might be entertaining. This doesn’t happen a lot, and it’s not easy to do¹ for an investor even if they do own quite a bit of stock, but yes it does happen every now and then.

Anyway, shareholder voting is mostly boring. Board members come up for election every 5 years or so. The board member is nominated by other board members and is almost always the only choice. So they get elected and re-elected over and over.

This year, LIC, which is India’s largest insurance company and has a ton of money which it uses to buy stock all over the place, decided that it wasn’t happy with the director appointments some of its investee companies were making. These companies were appointing the sons and daughters or nephews and nieces of the founders, and LIC had good reason to not like it. Here are two examples from Mint:

Take, for example, LIC’s observations on the resolution seeking the reappointment of Sagar Adani at Adani Green Energy Ltd. Sagar Adani is the nephew of group founder and chairman Gautam Adani.

“With less than 10 years of post-qualification work experience, his experience is not enough to be an executive director on the board of a listed company," LIC reasoned when the proposal was put before shareholders to vote in July. “Remuneration not capped," LIC noted.

And,

Similarly, LIC made a rare rebuke on the reappointment of P. Sarath Chandra Reddy, the eldest son of P.V. Ramprasad Reddy, the co-founder of Aurobindo Pharma, the fifth-largest pharma company by sales.

“[The] Enforcement Directorate (ED) has a case against him," LIC reasoned when the resolution seeking re-appointment of Sarath Reddy was put before shareholders this August.

This is strong stuff! LIC doesn’t like that Adani Green was appointing a kid on the board just because his surname had Adani in it. It also didn’t like that the director of Aurobindo Pharma had an ongoing criminal investigation against him. If you were LIC, you had two options here: ²

1. Vote against these appointments. Ask other large investors to vote against them too. Nothing would come out of it. These are companies where the families own the majority of their company stock! But that’s fine. Your vote is how you express your displeasure, and it would be embarrassing for the company.

2. Just sell your company stock. You’re a large investor that is stable as a rock.³ You might not have enough voting shares to influence a decision but you can just sell your stock and move on if the company isn’t listening to you. Sell and move on.

Here’s what LIC chose to do: Nothing! It abstained from voting! The only reason Mint even figured that LIC even had any sort of opinion about these appointments is because LIC releases a voting disclosure every quarter.⁴

Here’s the 98-page document. Mint has only written about LIC’s abstain votes in the context of appointments of the family kid. Overall though LIC does vote against some resolutions. So it’s not like LIC doesn’t ever vote against, it just chose not to for these companies.

You could say that LIC preferred dealing with the kids with kid gloves.

1. A good example of how difficult it can be for an investor to change a company’s management even after having the votes is the Yes Bank-Dish TV episode. I will write about this in great detail someday, but the gist of it is that Yes Bank wanted the founders of Dish TV out of the company, had enough voting shares, couldn’t get the founders because of constant litigation and stalling, so decided to just sell off the shares for a massive discount.

2. You have two options once a particular resolution is up for vote, yes. But before that happens, you can apply pressure on the management through back channels. Don’t let the wrong guy be nominated in the first place!

3. LIC is a government-owned company that is never going to go bankrupt, manages money for investors that have invested into low-paying pension schemes, and has no real incentive to actually insist on making a profit on its investments.

4. The only reason LIC even makes these disclosures is because it has to. It’s an insurer and insurance is heavily regulated. If LIC was a regular institutional investor, we may never have known how it voted. But then again, it may not have abstained if it was a regular institutional investor.