Two more front companies are working to get Vijay Shekhar Sharma fired as CEO of Paytm.

Two more front companies are working to get Vijay Shekhar Sharma fired as CEO of Paytm.
Two more front companies are working to get Vijay Shekhar Sharma fired as CEO of Paytm.

The next day, two more proxy advisory firms agreed with Institutional Investor Advisory Services (IiAS) that Paytm shareholders should vote against Vijay Shekhar Sharma’s reappointment as CEO and MD. Both Stakeholders Empowerment Services (SES) and InGovern Research Services have said that public shareholders should vote against the resolution.

But the reasons they gave for getting rid of Sharma are different.

 

InGovern’s main complaint is that Sharma doesn’t have to step down as a director because it’s his turn, and not so much about the stock price going down.

 

“Sharma doesn’t have to step down as a director when it’s his turn, and that’s the main problem, in our opinion.

 

Paytm is not a special case in terms of how its stock price has done. All of the stock prices of new-age companies have dropped from their highs. Also, most of them don’t make any money. Mutual funds and insurance companies are still trying to figure out how and when these businesses will start making money. “This was known at the time of the IPO,” said Shriram Subramanian, who started InGovern and is now its founder and managing director.

 

Not just Paytm, but also Zomato, Policy Bazaar, and Nykaa have seen their stock prices drop sharply from their peaks. On the issue of ESOP issuances, most startups have also been at odds with their shareholders.

 

At the same time, SES has a problem with Sharma’s “excessive” pay and the fact that he is both chairman and managing director.

 

“There is no law that says the chairman of the company can’t also be an executive, but SES thinks the company should have separated the positions because putting both in the same person could give that person too much power,” it said in a note.

 

Sharma has nearly 46% of the ESOPs given out by Paytm’s 2019 ESOP Scheme, and he got them at a very low price compared to the share price of the company.

 

Paytm stock dropped 4.7% on Friday, ending the day at Rs 787.

 

“If the options are exercised at an exercise price of Rs 9 per option, Sharma would make about Rs 1,962 crore (at a share price of Rs 810)… The voting advisory firm SES thinks that a director’s performance should be measured against both the individual’s performance goal and the company’s overall performance. This means that an ED’s pay must include a variable performance-based component.

 

IiAS has put more attention on Paytm’s bad performance since it went public.

 

“Since the company went public, its stock price has dropped by 63.6% (from the issue price of Rs 2,150). This has caused shareholders to lose money. In FY22, the company lost Rs 1,200 crore in cash, and losses are high in the first quarter of FY23. Sharma has promised more than once to make the company profitable, but none of these promises have come true. “We think the board should think about making the management more professional,” IiAS said.

 

This is a rare case of a voting advisory firm asking shareholders to vote out an MD-CEO. About seven years ago, IiAS said that Tusli Tanti shouldn’t be reappointed as MD and CEO of Suzlon because there were questions about how well he did his job.

 

It is rare for shareholders to fire an MD and CEO, but there have been a few cases in the past few years.

Even though the RBI had approved Sunil Gurbaxani’s appointment as managing director and CEO of Dhanlaxmi Bank in Kerala for three years, the bank’s shareholders voted against it in 2020.

 

Also, Dish TV shareholders voted against a plan to make Jawahar Goel the managing director again (MD). But he stayed on the board because the articles of the association said he could be a director who didn’t have to leave when it was his turn.

 

Sharma’s future as CEO of one of India’s most popular digital payment companies will depend on whether or not the advice from the three proxy firms sways Paytm’s large shareholders.

 

Institutional investors in the United States, such as mutual funds and insurance companies, who usually listen to what proxy firms say, own less than 2% of the company. Nearly 17% of the company is owned by individuals, but it is not known if they vote often.

 

Like other new businesses, Paytm doesn’t have a clear promoter. At the end of the June 2022 quarter, China’s Ant Financial had a 24.88% stake, SoftBank Vision Fund (SVF) had 17.46%, and SAIF Partners had another 10.6%.

How these three big shareholders vote is still up in the air.

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