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Shareholder activism: Will Infosys shareholders take lead?

Shareholder activism is common in developed markets. It is a push for shareholder friendly actions like higher dividend pay or buybacks by institutional investors like pension funds, provident funds, mutual funds, hedge funds or private equity funds. These institutional investors often own minority stakes in companies. They can collectively take a stand on (for or against) decisions taken by the management or the board of directors of a company. 

 A section of Infosys shareholders have called for a leadership change at the top to stimulate revenue and profit growth in the company. 

 Here are pointers to help you comprehend the trend:

 • Pension funds like the US-based California Public Employees' Retirement System (CalPERS) have a reputation play an active role in setting corporate governance standards by forcing company boards to take shareholder friendly decisions. Institutional investors in Europe often play a pivotal role in corporate merger and acquisition situations.

 • The Infosys management faces shareholders’ ire for not meeting its own revenue growth guidance. The company management has been recently criticized for underperformance and institutional investors have called for leadership changes, according to a report by Reuters, a newswire.

The conservatism that served Infosys so well for three decades is now stunting its growth, prompting calls from investors for new blood at the top of India's showpiece outsourcer, the Reuters report said quoting a couple of institutional investors. "For years, we loved Infosys for consistently delivering more than they promised and now we are seeing just the reverse," said Mads Kaiser, a fund manager in Denmark at JI India Equity, which holds $200 million in Indian shares including Infosys.

 • Critics say that the company is protecting profits at the expense of growth in a difficult market for IT services companies in US. The North America region accounts for over 60 per cent of the revenue generated by Indian IT services companies. Infosys gets around 62 per cent from the region.

 • The company has also been criticized for hoarding close to Rs 20,000 crore cash. Investors believe that the company should either return cash to shareholders through a dividend or a buyback of shares or inject it into the business to fuel faster growth.

 • Infosys founders-promoters own 16 per cent of the company. Foreign institutional investors control 39 per cent stake in the company.

 • In India, we have seen sporadic activity on shareholder activism. When Crompton Greaves bought an executive jet for Rs 270 crore, institutional shareholders came down very hard on the management last year. The company was forced to sell it to a promoter group company for the price at which it was bought.

 • The Children’s Investment Fund or TCI, a UK-based activist fund, owns 1 per cent of Coal India, a state-owned giant where the Indian government owns 90 per cent. The government recently issued a presidential decree to the Coal India management to force the company to sell coal at a cheaper price than the market rate through a fuel supply agreement or FSA. TCI has protested the move arguing that the company's income is hurt in the process. 

 (With inputs from Thomson-Reuters)

Source: NDTV Profit

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