HDFC Board Issue: Uday Kotak suggests curbs on foreign proxy advisors

Kotak Mahindra Bank chairman Uday Kotak has sought regulation of international proxy advisers to avoid the kind of wilful attack on well-managed firms like HDFC after two overseas  proxy advisers asked investors to vote against the reappointment of Deepak Parekh on the board of HDFC Ltd, India’s largest mortgage lender.

These foreign investors, which account for nearly 73 per cent of HDFC’s total shareholders, decided to vote en bloc against the reappointment of Parekh for the obvious reason that he is present on more than five boards.
These investors have, are suspected of having been advised to act together by their advisory firms presumably to assert their power.
While Parekah is in no way involved in direct day-to-day affairs of HDFC, the vote against him on the board of an Indian entity is seen as an affront on Indian business and India’s regulators.
HDFC has nearly 73 per cent of foreign shareholders and an attack on it means that any company that has high foreign stakes is prone to destabilisation by foreign elements.
The Parekh affair has forced Uday Kotak, managing director and chief executive officer of Kotak Mahindra Bank, to call for regulating proxy advisory firms in India.
HDFC is a widely held firm and there are no special favours being shown to Parekh as is the case with some owner-promoters.
“We have seen the concentration of voting through global proxy advisory services, leading to concentration of voting power in the hands of a few global agencies,” Kotak said on the sidelines of the listing ceremony of HDFC Asset Management Company Ltd. “This questions the very basis of well-run, widely held companies and diversified ownerships.”
Kotak Investment Banking was the lead manager for the initial public offer of HDFC AMC, which listed at a premium of 65 per cent on stock exchanges.
Two US proxy advisories — Glass Lewis & Co and Institutional Shareholder Services — had asked investors to vote against Parekh and two other board members — former Reserve Bank of India governor Bimal Jalan and well-known accountant Bansi Mehta — citing the number of directorships they hold, lack of attendance and overall independence of HDFC’s board.
While Parekh, with 33 years on the HDFC board, narrowly survived the votes against him, Jalan and Mehta quit a day before the shareholder vote.
“It also bothers me that some of the most reputed names in India get questioned and actually have to take a tough call, between being voted out or resigning. And these are outstanding Indian names who had to face this,” he added.
Kotak recently led a committee constituted by regulator Securities and Exchange Board of India to review corporate governance norms applying to listed entities. It is on the recommendations of this committee that SEBI’s regulations now require that any director above the age of 75 seeking reappointment must do so via a special resolution. In company law, a special resolution requires 75 per cent of the votes cast in favour of the resolution.
Hence Parekh, who was up for reappointment as director on the HDFC board required a high number of votes in his favour. He won by less than 0.2 per cent.