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A day after Institutional Investor Advisory Services (IiAS) wanted shareholders to vote against the reappointment of Vijay Shekhar Sharma as CEO and MD of Paytm, two more proxy advisory firms have followed suit. Stakeholders Empowerment Services (SES) and InGovern Research Services have both recommended that public shareholders defeat the resolution.
However, the reasons cited by them for Sharma’s ouster are different.
The main bone of contention for InGovern is that Sharma is not liable to retire by rotation as director and not so much around the stock price decline.
“Sharma is not liable to retire as director by rotation, that’s the main problem in our view.
As far as the share price performance is concerned, Paytm is not a unique case. All new-age companies have seen their stock prices tank from the highs. Also, most of them happen to be non-profitable. MFs and insurance companies are still trying to understand how and when these companies will turn profitable. This was something that was known at the time of the IPO,” said Shriram Subramanian, founder and managing director of InGovern.
Not just Paytm, shares of other startups such as Zomato, Policy Bazaar and Nykaa are down sharply from their highs. Most startups have also been at odds with their shareholders on the issue of ESOP issuances.
Meanwhile, SES has an issue with Sharma holding the position of chairman as well as MD and his “excessive” remuneration.
“Although, there is no legal bar on the chairman of the company from holding executive position, SES is of the view that the company should have separated the position since combining both positions may lead to concentration of powers in the hands of a single person,” it said in a note.
Sharma has got nearly 46 per cent of the ESOPs issued under Paytm’s 2019 ESOP Scheme that too at a deep discount to the company’s share price.
Shares of Paytm fell 4.7 per cent on Friday to end at Rs 787.
“Considering that the options are exercised at an exercise price of ₹9 per option, Sharma’s economic benefit would amount to approx Rs 1,962 crore (at share price of Rs 810)… SES is of the opinion that a director’s performance should be benchmarked against the individual’s performance target as well as company’s overall performance, and therefore the remuneration to an ED must include a variable performance-based component,” the voting advisory firm has added.
IiAS has laid more emphasis on Paytm’s poor performance post-listing.
“Since the company’s listing, the company’s stock price has fallen by 63.6 per cent (from the issue price of Rs 2,150), resulting in wealth destruction for shareholders. In FY22, the company reported a cash loss of Rs 1,200 crore and losses in the first quarter of FY23 are high. Sharma has made several commitments in the past to make the company profitable, however these have not played out. We believe the board must consider professionalising the management,” IiAS has said.
This is a rare instance of voting advisory firms asking shareholders to vote out an MD-CEO. About seven years ago, IiAS recommended an against vote on resolution pertaining to re-appointment of Tusli Tanti as MD & CEO of Suzlon due to questions over his performance.
Shareholders booting out an MD & CEO is rare but there are some recent examples.
In 2020, shareholders of Kerala-based Dhanlaxmi Bank had also voted against the appointment of Sunil Gurbaxani as managing director and CEO, even though the RBI had approved his appointment for three years.
Also, shareholders of Dish TV had voted against a resolution to re-appoint Jawahar Goel as the managing director (MD). However, he continued to remain on the board as the articles of association allowed him to be a director not liable to retire by rotation.
Sharma’s fate at the helm of one of India’s most-popular digital payments firms will depend on whether large shareholders of Paytm get swayed by the advisory given by the three proxy firms.
Domestic institutional investors such as mutual funds and insurance companies — who typically follow the advice of proxy firms — hold less than 2 per cent stake in the company. Individual shareholding in the company is high at nearly 17 per cent but they are not known to be active voters.
Like other startups, Paytm has no identifiable promoter. Some of its large shareholders include China’s Ant Financial, which held 24.88 per cent stake at the end of June 2022 quarter, and SoftBank Vision Fund (SVF), which held 17.46 per cent and SAIF Partners’ held another 10.6 per cent.
It remains to be seen how these three big shareholders vote.
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