NEW DELHI: Indian promoters are increasingly confronted with shareholders’ activism, backed by institutional investors and proxy advisory firms, inside the boardroom. The latest to face the axe is Zee Entertainment Enterprises Ltd (ZEEL) with two of its top shareholders calling for a revamp of ZEEL’s board, including the ouster of MD and CEO Punit Goenka, who is the son of the Essel Group patriarch Subhas Chandra, and appointing six new independent directors.
Invesco developing Markets Funds and OFI Global China Fund LLC -- together holding 17.88% stake in ZEEL -- have called for an extraordinary general meeting (EGM) for the removal of Goenka and independent directors Manish Chokhani and Ashok Kurien from the board of the company. Chokhani and Kurien, however, have voluntarily resigned.
Industry observers, meanwhile, aren’t amused as they say that the exit of the Goenka family which owns just 3.99% of ZEEL was just a matter of time.
“There is a good professional team in all key departments at ZEE below the MD level. The question is, will they stay if Goenka leaves?,” pointed out Abneesh Roy, Executive Director (Research), Edelweiss Securities.
Roy explained that Goenka was focussed on core business (exited loss-making channels such as Sports), launched successful TV channels in regional space, was aggressive in channels of future — OTT, had a sustainable low-cost content strategy and gave space to professionals (unlike earlier times).
Invesco’s plan to bring in new management is seen as result of poor investor relations, recent instances of insider trading more than financial perfomance. Since the management revamp after Chandra’s exit, there have also been changes in ZEE's key disclosure such as related-party transactions and key balance sheet numbers. The company has also been doing well in terms of business under Goenka's leadership, although ZEE's performance has been less than expected in the recent time owing to the Covid 19-led disruptions. "We expect 100 bps improvement in market share in Q2 FY22 with the economy further opening up and as the advertising space continues to improve. If everything goes right, we have a new board and more independence, ZEE should do well," he added.
At this point, proxy advisory firms aren’t sitting quiet either. Institutional Investors Advisory Services (IiAS) have raised serious corporate governance concerns pertaining to the company. They have asked shareholders to vote against the reappointment of Chokhani and Kurien on the company's board at the AGM. However, the duo have stepped down just ahead of the AGM. Kurien was accountable for the manner in which remuneration had been managed in FY21 as Goenka’s salary increased by 46% (higher than what was approved by shareholders in the 2020 AGM), while employees were given no raise for FY21. He was also a member of the audit committee in FY20 and is accountable for the losses on account of related-party transactions and governance concerns outlined by previous independent directors, which resulted in significant erosion in shareholder wealth, IiAS had said.
Shriram Subramania, founder and managing director of InGovern Research Services, raised concerns over the appointment of Goenka as the member of ZEEL’s audit committee. “It is strange that the Board allowed such an induction of a promoter executive director into the audit committee,” he said, adding Zee is probably one of the few companies where the promoters retain significant control over the company with very little shareholding.
However, Goenka remained tight-lipped at Tuesday's AGM in the face shareholders’ revolt. Rather, he defended the corporate governance track record of the media company. The verdict on key resolutions that were up for voting at this AGM, including adoption of financial results, will be out on September 16. All eyes are on the crucial EGM which would decide the fate of the beleaguered Goenka amid high-stake investor activism to oust the promoter family from ZEE altogether. The Board now needs to call an EGM within 21 days of receipt of notice to decide on the proposals.
The stock price zoomed nearly 40% following growing expectations of improvement in corporate governance standards in the long term. Kotak Securities updated the rating of the stock to ‘Buy’ with a Future Value of Rs. 250. “We expect the stock to re-rate and the gap between Zee’s market value and intrinsic value to narrow notwithstanding the evolving situation,” it said in a note. Over the past three years, the stock has fallen 60% from Rs.472 on September 14, 2018.