Eicher Motors: Most proxy advisors give thumbs up to Siddhartha Lal’s reappointment as MD

Eicher Motors has proposed two ordinary resolutions, one ratifying the reappointment of Lal as the MD effective from May and the other capping his salary at 1.5% of the company’s annual profit. Ordinary resolutions need a simple majority of over 50% votes to be approved.

Proxy advisor IIAS, InGovern, Glass Lewis and ISS have given the green light to these resolutions. Meanwhile, SES has argued that these are not compliant with the law.

Proxy advisory firms give recommendations to institutional shareholders on how to vote on resolutions proposed by the companies they have invested in. Institutional shareholders like mutual funds, foreign portfolio investors and insurance companies hold about 38.4% stake in Eicher Motors.

This comes after a special resolution to reappoint Lal as the MD and to approve his annual remuneration with a cap at 3% of profits failed to pass muster at the company’s annual general meeting (AGM) on August 17. Special resolutions need 75% of shareholder votes to be approved.

More than 72% of the institutional shareholder votes cast at the AGM were against the resolution after proxy advisory firms raised red flags citing high remuneration for Lal despite a decline in the company’s profit. Lal’s salary grew by 66% between FY19 and FY21 to over Rs 21 crore and was expected to be over Rs 22 crore. During this period, the company’s profit declined by 35% to Rs 1,329 crore.

An ordinary resolution seeking the reappointment of Lal as a director was approved at the AGM.

The company’s board subsequently reappointed Lal as the MD on August 23 effective from May 1, when his earlier term as MD expired. After taking feedback from shareholders, the company also lowered the cap on his annual salary to 1.5% of profits.

Proxy advisors including SES have given their thumbs up to the move. However, SES in its report argued that the board reappointing Lal retrospectively was not compliant with the law.

“SES is of the view that while shareholder approval for MD reappointment can be taken from a retrospective date, the board itself cannot appoint or reappoint retrospectively,” read the proxy advisor’s report.

SES said that Eicher Motors must separately seek shareholder ratification for Lal’s term as MD from May 1 to August 17 – the day of the AGM – on revised remuneration terms. Eicher must then seek shareholder approval for a fresh appointment from August 23.

The automaker, in its response to SES, said that internal and external counsels had reviewed the concerns raised and they were found to be “completely unfounded.” Proxy advisors are required by regulation to include in their reports the perspective of the company under question.

When contacted, an Eicher Motors spokesperson said: “All legal aspects of our proposal have been extensively reviewed and evaluated, and due legal process is being followed.”

To be sure, SES does not oppose Lal’s reappointment as the MD per se. It has only objected to the technicalities of the reappointment. Even in August, when most proxy advisors had opposed the special resolution, the objection was only regarding Lal’s remuneration. Some have even gone on record to acknowledge his contributions in turning around the Royal Enfield business.