CHANGING TRENDS IN SHAREHOLDER INVOLVEMENT IN INDIAN CORPORATE GOVERNANCE

INTRODUCTION

Corporate governance in India has undergone a significant overhaul over the last few decades. These changes have been spurred by a mix of global economic shifts, major corporate scandals, and stricter regulatory oversight. One of the key developments from this transformation has been a stronger focus on transparency, accountability, and involving a broader range of stakeholders in corporate decision-making processes.

Among these stakeholders, shareholders—the actual owners of companies—are beginning to assert themselves more actively. This change marks a clear move away from the traditionally passive role investors have played. The growing trend, known as shareholder activism, reflects a newfound willingness among investors to influence the direction and decisions of the companies they invest in.

Shareholder activism encompasses various actions by investors aimed at influencing corporate policies and governance. These can range from voting on major decisions and pushing for transparency, to challenging management practices or suggesting alternative strategies. While historically less common in India, recent years have seen a significant uptick in such engagement, particularly from institutional investors. This paper explores the development of shareholder activism in India, the legal framework supporting it, key drivers behind this trend, noteworthy cases, and its likely future trajectory.

UNDERSTANDING SHAREHOLDER ACTIVISM

At its core, shareholder activism [1]involves proactive efforts by investors to shape a company’s direction—whether it’s strategic, financial, or ethical. Activist shareholders might challenge decisions made by executives, propose new business approaches, initiate legal challenges, or engage in direct conversations with corporate leadership. Unlike passive investors, activists often emphasize responsible governance, long-term performance, and alignment with ESG (Environmental, Social, and Governance) standards.

In India, this kind of activism was once rare. However, the exposure of major corporate frauds—such as the Satyam scandal—has heightened awareness about governance shortcomings. This, along with increasing regulatory support and the rising influence of institutional investors, has laid the groundwork for more assertive shareholder involvement.

LEGAL AND REGULATORY FOUNDATIONS SUPPORTING SHAREHOLDER EMPOWERMENT

Several legislative measures and regulatory reforms in India have bolstered shareholder rights and oversight:

Companies Act, 2013

This act modernized corporate law in India[2], granting shareholders more power and protection through enhanced compliance and disclosure requirements. Key provisions include:

• Sections 108 & 110: Enable electronic voting, making participation easier and more widespread.
• Section 118: Requires companies to maintain detailed meeting minutes.
• Sections 241–242: Allow shareholders to approach the National Company Law Tribunal (NCLT) in cases of mismanagement.
• Section 149: Mandates the appointment of independent directors to represent and protect minority shareholders.

SEBI’s LODR Regulations (2015)

The Listing Obligations and [3]Disclosure Requirements (LODR) set standards for transparency among publicly traded companies. These rules mandate:

• Timely disclosure of significant events,
• Shareholder approval for related-party deals,
• Establishment of whistleblower channels, and
• Oversight by independent audit and nomination committees.

Role of Oversight Institutions

Regulatory bodies such as SEBI, the NCLT, and the Ministry of Corporate Affairs are instrumental in ensuring companies uphold shareholder rights and maintain accountability.

Stewardship Code (2020)

Introduced by SEBI, this code provides guidance to institutional investors like mutual funds and insurance firms, encouraging them to play an active role in corporate governance. It outlines principles around voting practices, managing conflicts of interest, and maintaining long-term engagement with companies.

FORMS OF SHAREHOLDER ACTIVISM IN INDIA

Shareholder activism in India manifests in various ways:

Voting on Corporate Decisions

Participating in [4]voting on company resolutions is a common form of engagement. With the rise of electronic voting, it’s become easier for investors—especially institutions—to express their views and hold companies accountable.

Direct Dialogue with Management

Some shareholders [5]choose to engage privately with company executives to voice their concerns about strategic or operational matters. While these discussions are typically confidential, they can significantly influence company decisions.

Proxy Advisory Services

Firms like Institutional Investor Advisory Services (IiAS) and Stakeholders Empowerment Services (SES) provide independent analysis and guidance to help shareholders make informed choices when voting on corporate matters.

KEY DRIVERS BEHIND GROWING SHAREHOLDER ENGAGEMENT

Several factors have contributed to the rise of shareholder activism in the Indian corporate sphere:

Increased Corporate Transparency

Stronger disclosure norms allow investors to examine company operations more closely and demand reforms where needed.

Influence of Global Investors

International institutional investors often bring expectations of higher governance standards, pushing Indian companies to align with global best practices.

Lessons from Corporate Scandals

Major failures [6]like the Satyam fraud have highlighted the risks of poor governance, prompting investors to demand greater accountability.

Technological Advancements

Tools like virtual Annual General Meetings (AGMs) and online voting platforms have lowered participation barriers, encouraging more shareholders to get involved.

IMPORTANT EXAMPLES OF SHAREHOLDER ACTIVISM IN INDIA

The Satyam Scandal (2009)

When it came to light that Satyam[7] had committed financial fraud of around ₹7,000 crore, the event became a wake-up call. It exposed glaring weaknesses in corporate oversight and sparked a push for more active investor involvement and stronger protection for minority shareholders.

Governance Disputes at Vodafone India

During internal disagreements at Vodafone India[8]—especially concerning leadership and business direction—shareholders, notably institutional investors, played a key role in shaping the conversation and influencing outcomes.

CONCLUSION

India is witnessing a gradual but meaningful shift toward more engaged and informed shareholders. This move from passive investment to active involvement signals the emergence of a healthier corporate ecosystem. While shareholder activism in India is still developing compared to more mature markets, the direction is promising. To sustain this momentum, it will be essential to continue strengthening regulatory frameworks, encourage institutional participation, and foster a culture of openness.

When approached constructively, shareholder activism isn’t about confrontation—it’s about collaboration. It can serve as a driving force for responsible governance and long-term corporate success.

Reference(S):

[1] R. N. Kar, India’s Foreign Trade and Economic Growth: A Sectoral Analysis, 56 ECON. & POL. WKLY. 33 (2021), https://journals.sagepub.com/doi/10.1177/09746862211045760.

[2] Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India)

[3] SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

[4] Neel Lakhtariya, The dynamics of shareholders democracy: An Indian perspective on corporate governance, LegalMantra.net (Aug. 21, 2024), https://www.legalmantra.net/blog-detail/The-Dynamics-of-Shareholders-Democracy-An-Indian-Perspective-on-Corporate-Governance.

[5] ^[5] Mudit Jain, Vanshika Sharma & Vaibhav Rathi, The Emergence of Shareholder Activism and the Breakdown of Corporate Governance, Particularly in India, Indian Journal of Integrated Research in Law, Vol. IV, Issue V, at 130 (2024), https://ijirl.com/wp-content/uploads/2024/09/THE-EMERGENCE-OF-SHAREHOLDER-ACTIVISM-AND-THE-BREAKDOWN-OF-CORPORATE-GOVERNANCE-PARTICULARLY-IN-INDIA.pd

[6] Palash Jain, Shareholder Activism & Its Influence on Corporate Governance Practices in India, TaxGuru (May 4, 2024), https://taxguru.in/company-law/shareholder-activism-it-influence-corporate-governance-practices-india.html.

[7] Tanushree Jaiswal, Satyam Scam: Case Study of the Satyam Fraud Case, 5paisa (Feb. 17, 2025), https://www.5paisa.com/blog/satyam-scam.

[8] Vodafone Idea Ltd. v. Saregama India Ltd., CS/23/2018, Calcutta High Court, May 17, 2024, available at https://indiankanoon.org/doc/91122152/.CaseMine+3