Two directors from Zee Entertainment Enterprises Ltd. have resigned and now the fate of Managing Director and CEO Punit Goenka depends on fire.
On September 13, Zee notified the exchanges that Ashok Kurien and Manish Chokhani, both non-executive, non-independent directors of Zee, had resigned with immediate effect.
According to the file, Chokhani resigned “due to changed circumstances and perspectives after Covid”, while Kurien cited “pre-occupation” as the reason for his resignation.
In a separate filing, the company also announced that two institutional investors – Invesco Developing Markets Fund and OFI Global China Fund LLC – had requested an extraordinary general meeting of shareholders to vote on:
Punit Goenka is dismissed as director.
Manish Chokhani is dismissed as director.
Ashok Kurien is deposed as director.
Appointment of six new independent directors.
The two institutions own 17.88% of Zee Entertainment. Up to 96% of the company is owned by public shareholders, of which foreign portfolio investors are the largest shareholders with 57.46%. Indian mutual funds own 8.1% and insurers own 10% – of which state-owned Life Insurance Corp. of India has the largest share with 4.89%.
Only 3.99% are owned by promoter Subhash Chandra and his family, including son Goenka, after they had to sell to repay loans from other companies in the family-owned Essel Group.
Both filings were posted on the Bombay Stock Exchange website well after 9:00 p.m. on September 13. The letter from the two institutional investors is dated September 11th and, according to Zee, was received on September 12th.
This raises two questions;
1. Have the Kurien and Chokhani resigned for the reasons stated in Zee’s filing or because of investor pressure?
2. Why did it take so long for critical disclosures to be published?
The storm is brewing: proxy action
These developments come barely days after the voting rights advisory firm IiAS recommended that shareholders vote against –
the acceptance of the financial accounts for 2020-21
Reappointment of curiae as non-executive, non-independent directors
Appointment of Chokhani as non-executive, non-independent director
at the company’s general meeting on September 14th.
The e-voting for these and five other resolutions ended on September 13 at 5:00 p.m. Shareholders can also vote at the general meeting.
As for the recommendation to vote against Kurien, the founder of the Zee Group, IiAS said in its report;
– It continued to classify him as a promoter as the company had neither requested nor obtained shareholder approval for reclassification.
– As a member of the Audit Committee, he was responsible for losses related to related party transactions and governance concerns from former independent directors during FY 2019-20.
– As a member of the Nomination and Compensation Committee, he was responsible for ensuring that Goenka’s compensation in FY21 was increased by 46% – higher than approved by shareholders – and at a time when employees were not receiving any increase.
The proxy advisory firm recommended that shareholders vote against Chokhani because;
– Previously, as an independent director and member of the Audit Committee, he was responsible for losses arising from related party transactions for FY20.
– As a member of the NRC, he did not succeed in professionalising the board even though the promoter’s shareholding had fallen below 5%. He was also responsible for compensation management.
In response to IiAS comments, Zee Entertainment said in a statement to BloombergQuint on Sept. 9 that;
It had vigorously refuted the proxy advisor’s views regarding the reappointment of certain directors.
The NRC finalized the overall remuneration framework following a structured evaluation process and implemented it with the approval of the Board of Management.
The Audit Committee has introduced various guidelines to strengthen governance standards.
the two directors have played an active role in institutionalizing governance standards.
The NRC and the Board of Directors – composed of mostly independent directors – unanimously recommended the reappointment of the directors.
Other credible proxy advisors, including international corporations, have recommended supporting the appointments.
Given the late hour of the company’s recent filings, no new comment has yet been received from the company.
The storm has brewed: Investor action
According to company law, shareholders who hold at least 10% of the paid-up share capital can request an extraordinary general meeting. The Invesco Developing Markets Fund (7.74%) and OFI Global China Fund (10.14%) together own 17.88% of Zee Entertainment.
According to the law, after receipt of a valid application, the company must hold an extraordinary general meeting within 45 days, otherwise the meeting can be called by the shareholders (request recipients) themselves within 3 months.
In addition to the removal of Goenka, Kurien and Chokhani, the two shareholders have also sought to appoint 6 new independent directors – Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepali, Gaurav Mehta, subject to the approval of the Ministry for information and broadcasting.
Today’s annual general meeting will provide information on what approach Zee’s board of directors and the minority supporters intend to take. And whether Punit Goenka will be able to hold onto his family’s model company for a long time to come.