Shareholder Activism

Roster Why Shareholder activism Objectives of Shareholder activism What Shareholder Activism Can Do? Global Phenomena Evolving eco system www.rna-cs.com

What is Shareholder Activism Shareholder activism is a way in which shareholders can influence a corporation's behaviour by exercising their rights as owners. Although shareholders don't run a company, there are ways for them to influence the board of directors and management. These can range from dialogue with management to voice their concerns about a particular issue to formal proposals that are voted on by all shareholders at a company's annual meetings. www.rna-cs.com

Why Shareholder Activism Minority shareholders are not protected Expropriation of minority shareholders No independent director and auditor Lack of monitoring function in the company Agency problem & moral hazard of management Shareholder’s value is ignored Controlling shareholder or managements are involved in self-dealing Nepotism in the management Weak enforcement of laws & regulations Laws are sleeping in the book Market monitoring function is weak Institutional investors are passive due to conflict of interest Government can not do everything www.rna-cs.com

Why Shareholder Activism Poor Corporate Governance Practices Company assets are siphoned for the family Illegal or unfair related party transactions Cross debt guarantee, hidden debt Sales and purchases among affiliated companies Financial subsidies for related parties: Loan No Transparency & No Accountability Disclosures and auditor’s reports are not credible Controlling family and management are not accounted for mis- management Poor corporate governance creates corruptions Improving corporate governance is one of effective way to fight against corruption in the society www.rna-cs.com

Objectives of Shareholder Activism Independent Watchdog on the Management Protect Shareholder’s Value Stop profit-siphoning management practice Stop subsidies to affiliated companies Stop illegal intra-group transactions Ensure Transparency & Accountability Independent management from controlling shareholder Outside directors representing minority shareholders Fights against Corruptions www.rna-cs.com

Aspects of shareholder activism Proxy voting Dialogue Resolutions Divestment www.rna-cs.com

Shareholder Activism Shareholder activism can be exercised through Proxy battles Publicity campaigns Shareholder resolutions Litigation and Negotiations with management

Proxy Voting A proxy vote is when a group of shareholders are persuaded to join forces and gather enough shareholder proxies to win a corporate vote. This is referred to also as a proxy battle. Used mainly in the context of takeovers, this term means the acquirer will persuade existing shareholders to vote out company management so that the company will be easier to take over. www.rna-cs.com

Proxy Voting When shareholders are dissatisfied with a specific aspect of a company, they may attempt to change it. This may result in resistance from the company’s board of directors (BOD). The dissatisfied shareholders try persuading other shareholders to let them use their proxy votes for proposed changes to the company's board members. The shareholders try removing board members opposing their desired changes and installing their own candidates. The new board members are typically more receptive to shareholders' proposed changes, making it easier to implement them. The company may move in a new direction, as decided by the BOD and shareholders. www.rna-cs.com

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What Shareholder Activism Can Do? Monitoring and reporting corporate activities Constructive talks with management before taking actions Exercise shareholder rights Attending shareholder meetings Proposing agenda at the shareholders meetings Electing directors Proposing outside director candidate Proxy fights Taking legal actions Filing civil lawsuit: Derivative actions, Class-Actions Filing criminal investigation Proposing and lobbying for legislation www.rna-cs.com

Global Phenomena Cognizant, minority shareholders in dispute over Board Los Angeles County Employee Retirement Association or Lacera - to make it mandatory for all board directors to be elected annually John Chevedden has forced Cognizant to introduce a proposal to empower investors with significant ownership to call for a special shareholder meeting Shareholders reject Citi CEO Vikram Pandit’s $ 15 million compensation package in non-binding vote. www.rna-cs.com