Write short notes on the following: (i) Shareholder activism

Shareholder activism is strengthened due to recent changes in Corporate Laws including the Company Act, 2013. These laws empowered the minority shareholders, which in turn, have protected them and empowered them to present their viewpoints to the Board of Directors and more actively protect their interest. The following factors have played a pivotal role in fostering shareholder activism in India: Electronic Voting: With the dawn of electronic age, where the distances around the world have been compressed by the use of internet, the Companies Act, 2013 has acknowledged the need to bring the advantage of technology to voting system of companies in order to enable the shareholders to be active in the decision making of the company. SEBI Regulations: Regulation 44 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, provides that the listed entity shall provide the facility of remote e-voting to its shareholders, in respect of all shareholders, resolutions. Further the listed entity shall submit to the stock exchange, within 2(two) working days of conclusion of its General Meeting the details regarding the voting results in the prescribed format. Approval of Related Party Transaction by Shareholders: A company shall enter into any contract or arrangement with a related party subject to the prescribed conditions, which inter alia requires that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a resolution of Shareholders. Alternate answer 3A (i) Shareholder activism is a phenomenon which has been gaining prevalence not only in India but the world over. It refers to a concept within corporate governance, where the shareholders of a company become more proactively involved in the functioning and management of the company that they have made investments in. It is a form of activism in which shareholders use equity stakes in a corporation to put pressure on its management. For instance, shareholder activists may prompt businesses with surplus profit to boost dividend dispersal among investors. The other financial reasons for activism may include cost-cutting, corporate restructuring, executive appointment, remuneration, etc. Besides seeking to change corporate financial policies, shareholders may also appeal to the corporation to look into its social performance like environmental reporting, discrimination, etc. The Companies Act, 2013 ("Act"), through sections 241 to 246, provides a robust legal framework for the protection of minority shareholders against oppression and mismanagement. Benefits of Shareholder Activism One of the primary benefits of shareholder activism is that it encourages companies to be more accountable to their shareholders. This approach compels companies to be more transparent in their operations, which can lead to better decision-making and ultimately, better returns for shareholders. Constant monitoring by the shareholders keeps the management on its toes and ensures the optimal utilization of the company's resources through methodical governance. As a result, the company's performance improves, thereby improving its profitability and enhancing its shareholder value in the long run. Hence, both for the company and its shareholders stand to benefit from shareholder activism. Moreover, this phenomenon also aids in resolving leadership-shareholder problems to foster a trustworthy and prosperous business environment. Consequently, the corporation's market position alleviates augmenting its prospects further. Risks of Shareholder Activism One of the main risks associated with shareholder activism is the potential for conflict between the activist and the company's management. Activists may push for changes that the management is not willing to make, which can lead to a breakdown in communication and a loss of trust. Additionally, shareholder activism can be expensive and time-consuming, which can divert resources away from other investments. Different Perspectives on Shareholder Activism There are different perspectives on the role of shareholder activism in corporate governance. Some investors believe that activism is necessary to hold companies accountable, while others argue that it can be disruptive and counterproductive. Some companies view shareholder activism as a threat to their autonomy, while others see it as an opportunity to engage with their shareholders and improve their operations. Shareholder activism can be a powerful tool for investors who are seeking to influence the decision-making process of the companies in which they hold stakes. While there are risks associated with this approach, the benefits can be significant if done correctly. Investors who are considering engaging in shareholder activism should carefully weigh the potential benefits and risks before making any decisions.