InvestorQ : Do you think the proxy firms are justified in demanding the ouster of Paytm CEO or are they going too far?
Dia Deshpande made post

Do you think the proxy firms are justified in demanding the ouster of Paytm CEO or are they going too far?

Sam Eswaran answered.
1 month ago

To an extent, the proxy firms are overstepping their brief. They have done a good job in specific cases, especially in cases like the Vedanta delisting offer or even the proposed stake buy proposal by Carlyle for PNB Housing. In both cases, the proxy firms highlighted the key issues and even forced a change in stance by the company. However, in the case of Paytm, the proxy firms may have ventured into a territory that is not exactly their domain. They should have restricted themselves to obvious violations and not matters of opinion.

In a way, it is true that the role of proxy firms are not too clearly defined in India and across the world Even global proxy firms like Piper Serica tend to play the activist role quite often. In the Indian context, it looks like the proxy firms have deliberately picked on the most vulnerable digital plays where even the promoter holding is too low. Remember that even the likes of Amazon and Twitter have taken much longer than anticipated to turn to profits and that, unfortunately, is the very nature of the digital business.

Just to give an analogy, what would have happened if these proxy firms in 2001 had given a call to oust the top management of Infosys just because the price had fallen by 70% from the peak. That would have been a ridiculous decision in retrospect and the proxy firms should avoid trying to influence the shareholders with their personal opinions, unless it is a proven matter of fact that corporate governance standards have been compromised. Remember that Stock prices and profits are never entirely under the control of the CEO.

But above all, this does set a rather dangerous trend for the future. The founders of most digital plays are already wary of losing control due to low holdings. Most of them had to dilute their holdings over the years to be able to raise the required funds. The founders of start-ups always have a special place due to his sweat equity and also due to the skin in the game they bring to the table. We have seen too many start-ups moving out. It is time that SEBI ensures these proxy firms do not end up acting on behalf of institutions.