From THE HINDU group of publications
Sunday, July 01, 2001


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For e-governance in company-shareholder relations

D. Sampathkumar

THE Federation of Indian Chambers of Commerce and Industry says that the legal framework for recording shareholders' consent under a postal ballot system is fraught with operational difficulties.

It has referred specifically to the period of 30 days the Government states should be given to shareholders of a company to indicate their assent or dissent to a proposal being circulated for postal ballot.

The problem, in FICCI's view, is how the 30 day period should be reckoned. Should it be reckoned from the date mentioned on the resolution that is proposed to be circulated or should it be done with reference to the date when it was actually posted? It doesn't, however, say what it considers appropriate. But one thing is certain. Reckoning the time limit of 30 days from the date indicated on the postal ballot would defeat the very purpose for which that system is introduced in the first place.

Companies are not above taking refuge under the excuse of the ubiquitous `postal delay' if they want to delay any communication to shareholders. How often have we not come across instances where dividend warrants reach shareholders a day after the expiry date on the warrant even though it is ostensibly mailed a good 30 days before the due date?

Again, the annual reports have an uncanny habit of reaching the shareholder very close to the day of the AGM, making it difficult to register a proxy if the shareholder cannot attend the meeting himself. So, leaving to the company the freedom to designate a date on the postal ballot is the surest way to ensure that the shareholders' voice is stifled. All that a company has to do if it is confronted with an inconvenient subject for postal ballot is to ante date the resolution and the scrutiniser will find that bulk of minority shareholders' votes do not reach him within the stipulated date for his verdict.

But FICCI does have a point when it says that post-offices refuse to accept beyond a certain number, letters/parcels submitted for onward despatch. No post-office can be manned for peak surge loads in its operations. So they may not be able to cope with the burden of having to despatch a few thousand letters to shareholders at one go. The issue, however, does not defy solution.

If the 30-day period is to be reckoned from the date of actual despatch, the problem of the postal department's inability to handle huge volumes at one go could be overcome by starting the process even a few days earlier, so that the last of the shareholders could still get the ballot sufficiently in advance to reflect on the proposal and take a reasoned view.

There are also private couriers who could be pressed into service. Or the company could even out the despatch load by arranging to have these ballots mailed from more than one location. These are some of the possibilities. Reckoning the 30-day limit from the date mentioned in the ballot is certain to defeat the purpose for the reasons mentioned earlier. Perhaps the Ficci, in drawing the Government's attention to postal limitations, and helpfully suggesting the other alternative, is indicating where its preference lies!

No doubt, many loose ends still need to be tied with regard to the concept of postal ballot. The Government needs to seriously look at the system of electronic registration of voting on company proposals. Internet banking and electronic cash withdrawals are already in vogue. And `cybercafes' have enlarged public access to the Internet considerably. We could integrate the security protocols implicit in e-commerce/electronic banking transactions with public access to the Net to put in place a system of e-corporate governance.

There is no denying the fact that a paradigm shift is needed in the shareholder-company interface. The general meetings of most companies go largely unrepresented by a substantial chunk of shareholders. A meeting of Reliance Industries or Telco may attract a few thousand shareholders. But that is still a small proportion of the total number of registered shareholders in these companies.

In fact, if all the registered shareholders of Reliance Industries decide to take part in a general meeting, the logistics of such an event would rival the Kumbh Mela, as the company is reported to have as many as 2.6 million shareholders. We must accept the fact that in the case of mega corporations, at least, the concept of total shareholder participation, in the conventional sense, is an impossibility.

In the 1950s and 1960s, or even well into the 1970s, this was not even an issue. Companies were relatively small. They raised monies from within the narrow geographical areas of their operation. A Mumbai-based company for instance did not even have to think of raising resources outside of Mumbai. In the circumstances, the regulator did not have to think in terms of alternative systems of shareholder participation. But things have changed. Today's reality is that company's shareholder base is increasingly cosmopolitan and is also very large in keeping the funding requirements of modern corporations.

In the West, corporations grew in size over the years. But in their case, the institutionalisation of share ownership meant that distance was not a constraint to participation. But in India, institutional ownership is still in its infancy, the size of a Unit Trust of India notwithstanding. The growth in corporate capital base has been funded by a large army of small shareholders. The absence of an institutional framework for proper enfranchisement is serious lacuna. The postal ballot or its electronic variant is a possible solution.

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