Public shareholders need a well-informed say in how their companies are governed

This thinking is misplaced at several levels. Regulations define the purpose for which companies need shareholder approval and by when. They provide the basic framework of dos and don’ts, and generally avoid specificity. For example, the rules require the exercise price of stock options to be between the stock’s face value and market value, but leave the final decision to the board.

Similarly, the rules do not stop related-party transactions from taking place, but list the disclosures required and specify the process and conditions for seeking the approval of the company’s audit committee and/or shareholders.

The claim that regulations invariably safeguard the interests of small shareholders is also tenuous. In companies with private equity on the cap table, shareholder agreements often embed differential rights favouring a specific set of investors, yet these are often ratified through the process of shareholder approval.

As regulations cannot envisage every scenario, they cannot always be comprehensive; in fact, if they are over-prescriptive, business chokes. For example, borrowing resolutions under section 180(1)(c) are limited to long-term debt and only for the standalone company. But most debt defaults have been caused by an immediate liquidity crisis (short-term repayment pressures), over-leveraged balance sheets across a business group (high consolidated debt) and limited financial flexibility.

Approvals for executive compensation too apply only if it is being paid out by the listed company; several promoters are paid handsomely by subsidiaries, so their remuneration is not brought up for shareholder approval. In a few instances, long- tenured independent directors completing their statutory tenure under the Companies Act of 2013 have been replaced by their progeny; this meets the regulatory standard, but does not pass a basic smell test of independence.

Regulations can define structure, not behaviour. Consider, for example, an independent director who, as chairperson of a listed aviation company’s board, chose to keep a forensic audit report (commissioned after a show cause notice issued by Sebi) to himself, such that “no other board member, including the Audit Committee, had access to the report”; in such cases, regulations cannot be the test for approving the director’s reappointment .

Similarly, when independent directors sit on boards (sometimes even as audit committee members) in multiple companies where promoters have been accused of siphoning money, they may be inattentive, incompetent or complicit. These instances are not a test of regulatory standards, but of judgement, accountability and integrity.

Regulations are directed at companies, not shareholders, and therefore offer no substantive guidance on how investors should evaluate or vote on individual resolutions. The responsibility for such decisions rests with investors themselves, aided by proxy advisors who provide independent research, context and advice.

Calls for greater disclosure by proxy advisors ultimately reflect a parallel demand for companies to be more specific about the approvals they seek. Such expectations are hardly unusual. Whether it is a banker approving a loan disbursal or a manager approving a salary hike, clarity and detail are always essential for an informed decision.

Some companies routinely conflate compliance with governance, hiding behind regulations while withholding meaningful disclosures. In doing so, they strip investors of the transparency needed for both real oversight and informed decision-making.

Consider stock option schemes. Some resolutions delegate nearly all critical decisions, such as exercise price and vesting conditions and periods, to the Nomination and Remuneration Committee. Broadly granted discretion effectively shifts shareholder approval authority back to the board. Although such resolutions may satisfy the rules, they fall short of the transparency needed to assess whether the scheme truly aligns with investor interests.

The argument that regulations decide what is best comes from the bureaucratic mindset of a ‘maibaap sarkar,’ which The Economist describes as “a deeply held belief—among leaders and citizens both—that the state sits at the centre of society and must be in control of it.” Some of India Inc seems to be awaiting regulatory prescriptions for better corporate behaviour before they move up the governance curve, even while groaning about increasing compliance costs.

Fortunately, most of corporate India recognizes that governance begins where compliance ends. The IFC-BSE-IiAS Indian Corporate Governance Scorecard reflects steady improvements in governance standards over time. Stakeholder expectations have evolved, and companies have adapted to meet higher non-regulatory benchmarks.

Yet, a small fraction of India Inc clings to the comfort of regulation, anchoring itself to the lower end of the governance curve. It is time to shed this bureaucratic mindset and embrace the spirit of responsible, self-driven governance that defines a mature market economy.

These are the author’s personal views.

The author is president and COO, Institutional Investor Advisory Services India Limited (IiAS). X-handle: @hetal_dalal