The coronavirus pandemic has brought economic activity to a grinding halt with most companies facing a cash crunch in running their operations. Given the challenging times, a recent survey reveals that investors who typically chase dividends wouldn't mind letting it go as they believe companies should preserve cash to sail through the economic crisis. According to a survey by proxy advisory firm Institutional Investor Advisory Services (IiAS), 78 per cent investors and sell-side analysts feel companies should suspend dividends and fortify their balance sheets. "Companies need to conserve cash and prioritise protecting their balance sheets. They can resume dividends once they restart operations and gain visibility," they said.
The response is in line with what IiAS recommended in the first week of April after the first phase of lockdown was announced. "Given that many companies are going to scramble to find money just to survive, dividends and buy-backs should be the last thing on a board's agenda. Only after business has stabilized and there is visibility ahead, should companies look at paying their shareholders," the report dated April 3 said. The latest survey that was conducted between 13 to 21 April sought investors' response on eight questions on a variety of resolutions that are presented to shareholders.
In another key finding, the survey highlighted that 57 per cent investors and sell-side analysts do not trust Big-4 audit firms and would like to move beyond them if required. The Big-4 audit firms - PwC, Deloitte, KPMG and Ernst & Young - have received flak from all quarters on their inability to capture true financial health of listed companies. In 2018, market regulator Sebi banned PwC from auditing listed companies for two years. Although the Securities Appellate Tribunal (SAT) has quashed the ban, Sebi has challenged the decision, says IiAS.
The Reserve Bank of India last year barred SR Batliboi & Company, an affiliate of Ernst & Young, from carrying out statutory audit assignments of commercial banks for one year. The Serious Fraud Investigation Office (SFIO) has charged Deloitte Haskins & Sells and BSR and Associates (part of the KPMG network), for colluding with IL&FS Financial Services (IFIN) executives and not revealing the true state of finances. It is looking at banning them from undertaking audits. Moreover, frequent resignation by auditors raises questions on the quality of the audits that are being presented to investors. The report further says that dual class shares have found favour with the respondents. Among them, 52 per cent believe that "it is one more instrument in a company's armory. And what's more, exchanges like NYSE allow these".
On promoters' embedded rights in the Articles of Association (AoA) of the company, such as permanent chairmanship for family member, non-rotating board seat and right to nominate directors, 87 per cent of the respondents said that these should be periodically put to vote, and the promoter can use their shares to vote for these. Published annually since 2013, this is the seventh edition of IiAS' Voting Guidelines in which 63-89 investors participated in answering various questions in the survey.