India Inc is not particularly fond of activism of any kind, let alone by shareholders. But some recent boardroom battles have proved that listed companies, whether they like it or not, cannot take shareholders for granted anymore. Zee Entertainment’s recent clash with two of its shareholders—Invesco Developing Markets Fund and OFI Global China Fund LLC—is not just a case in point but also a test of how good the country’s shareholders redressal framework is.
The two investors have been seeking an overhaul in Zee’s board and called for the ouster of its managing director Punit Goenka. They have on multiple occasions asked the board to hold an Extraordinary General Meeting (EGM). They moved the National Company Law Tribunal (NCLT) to force the board to convene an EGM and even got a favourable order. However, to everyone’s surprise, the Zee board has decided to defy NCLT’s order and not hold it. The board apparently thinks the call is invalid and illegal, and has expressed its inability to convene the same.
While some in the corporate world have raised ‘suspicion’ over Invesco’s intent behind disrupting a perfectly working board, it is clear the two shareholders with over 17% holding in Zee Entertainment are within their rights to call for an EGM. By deciding to defy NCLT and moving the High Court against the investors’ call, the Zee board is basically buying time. This, along with its hurriedly announced merger deal with Sony Pictures, raises many doubts.
The deal is seen to be positive for the company as has been pointed out by several brokerage firms, but the fact that the board is not ready to pay heed to shareholders’ concerns and their call for an EGM is unbecoming of a responsible and transparent corporate entity. While we do not know which way the Bombay High Court order would go, Zee’s unwillingness to call the meeting and trying every trick in the book to avoid it is not good news for minority shareholders and advocates of good corporate governance.