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The tough job of handling shareholders

For the shareholders, it's not only the top line and the bottom line that matter, but also dividends, bonus shares, buy-backs and even cash and cash equivalents on books.

twitter-logo Nevin John        Last Updated: November 26, 2015  | 12:15 IST

Senior Editor, Nevin John
The season of annual results, usually, ends with the grand finale of shareholder meetings (annual general meetings or AGMs). For the shareholders, it's not only the top line and the bottom line that matter, but also dividends, bonus shares, buy-backs and even cash and cash equivalents on books.

For instance, if the company has huge debts, then the shareholder will want to know where the mismanagement is. He might even go to the extent of demanding removal of board members.

In this context, what are the precautions that the head of the board of directors should take? Let us take the 2013 AGM of Tata Steel as an example.

Adil Irani, one of the loyal shareholders of the company, became furious and criticised the management for offering a lower dividend. He then went a step further and demanded the removal of two senior members on the board.

Cyrus Mistry, who was addressing the shareholders for the first time as the chairman, offered his thoughts to pacify Irani. When Irani refused to budge, Mistry too became adamant in his stand. The issue was finally resolved with the intervention of other board members. While walking out at the end of the meeting, Mistry met Irani and offered a chocolate. That was the end of the issue.

However, the situation was different for Mukesh Ambani. At the AGM of Reliance Industries in 2008, Ambani, who is mostly cool and shy at public events, lost his temper when a shareholder accused him of breaking promises. The shareholder also questioned him for building an expensive home and buying a jet. Ambani showed his fury by banging his fist on the desk, and replied, "You are lying… If you don't like the company, you may sell your shares."

A few shareholders always go overboard and criticise the management for lower dividends, because many shareholders actually live on dividends. They hold the shares for decades and use the dividend for their livelihood.

So, when companies pass on just 10-15 per cent of the earnings per share (EPS) as dividend, they demand more. But the companies hold back the earnings to reinvest for creating a larger base.

The chairman needs to explain the roadmap of growth in an unambiguous way to avoid such attacks. Most of the time, the chairman's speech points out last year's growth and the challenges they faced. But they say little about where will they invest and how value will be appreciated in the next year.

In one of L&T's AGMs, Chairman A.M. Naik came without a proper speech since his views were there in the annual report. But shareholders demanded that the chairman talk and he had to oblige.

Another major issue is activism. Some activists creep into AGMs by buying minimal shares. Once when Ratan Tata was the chairman of Tata Group, Greenpeace activists entered the Tata Steel AGM to attack the company's decision to build a port at Dhamra in Odisha. The port site is the breeding ground of turtles.

When the activists attacked the company, Ratan Tata, who came to AGM with Tata Steel's union leaders, promised that the port would not disturb the environment. He appointed B. Muthuraman, Vice Chairman of the company, to discuss the issue with the activists and find a solution.

Another unavoidable situation for the chairmen will be mockery sugarcoated in praise. Some shareholders will compare them with the sun, moon and stars and the others will laugh.

Some of it will be witty. Like once Hindustan Unilever's former Chairman Harish Manwani was stumped when a lady shareholder asked him whether he used HUL's soaps as she found his skin "beautiful".

It's a tough job to answer shareholders.


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