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World’s biggest sovereign wealth fund has a piece of advice for Zomato

Norges owns less than 1% in Zomato. Mint

2 min read . Updated: 26 Sep 2021, 06:28 PM IST Varun Sood

Zomato should have a robust nomination and election process to ensure an effective board that is accountable to shareholders, says Norges

Norway’s Norges Bank Investment Management, the world’s biggest sovereign wealth fund, has a piece of advice to Zomato, one of the country’s first startups that went public: Allow your shareholder to elect all your board members.

Last weekend, Norges Bank Investment Management voted against a resolution that sought shareholders of Zomato to approve “Article 103A of the Articles of Association". Under this proposal, Zomato founder Deepinder Goyal and the two investors, Alipay and Info Edge, are bestowed the right to nominate one director, each, to the board of the food delivery firm.

“The company should have a robust nomination and election process to ensure an effective board that is accountable to shareholders. Shareholders should be able to participate in frequent elections of all board members, preferably on an annual basis," said Norges in the rationale of voting against the resolution. “The company should establish reasonable procedures for shareholders to include proposals in the meeting material distributed by the company, including proposing board candidates," said Norges, which owns less than 1% in Zomato.

More than 90.5% of shareholders voted in favour of this proposal. But this was largely because of the 35% shares owned by Goyal, Info Edge (India) Ltd, Alipay Singapore Holding Pte Ltd, Antfin Singapore Holding Pte Ltd, which own 4.71%, 15.23%, 7.12% and 7.01%, respectively, in the company. On the other hand, more than 61% of public institutions, including Norges, which together own about 15% in Zomato, voted against the proposal.

Norway’s $1.3 trillion sovereign wealth fund, which owns 1.5% of the world’s listed companies, owns shares in 320 companies in India, according to an analysis by Mint.

Zomato’s eight-member board is chaired by independent director Kaushik Dutta and includes Goyal, Sanjeev Bikhchandani as the nominee of InfoEdge and Douglas Feagin as representative of Alipay. Aparna Popat, Gunjan Soni, Namita Gupta and Sutapa Banerjee are the four other independent directors independent director.

It is rare for homegrown listed companies to allow promoters to nominate a director on the board. Interglobe Aviation, which runs the low-cost airlines Indigo, allows co-promoter Rahul Bhatia to appoint six directors while Gangwal can nominate two directors. However, unlike Zomato, which extends this right to appoint a director on the board to two of its investors, none of the other listed companies has this provision.

Expectedly, proxy advisory firms like Institutional Investor Advisory Services India Ltd too got queasy at the inclusion of the clause.

“Deepinder Goyal’s board nomination rights continue as long as he is executive director, independent of his shareholding. Given their already low shareholding, the board nomination rights are prejudicial to the interests of the remaining shareholders: it allows these three shareholders significant influence over board decisions and possibly board control," IiAS explained in a note when it recommended to shareholders to vote against this resolution. “None of the three shareholders proposed to get board seat nomination rights are classified as promoters of Zomato Ltd."

Like Zomato, which went public in July was valued at $14.5 billion as of 24 September, Freshworks, which got listed at Nasdaq earlier this week, and was valued at $13.1 billion, also allows its investors, including Accel, Sequoia Capital and CapitalG to name a director each on the board.

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