IiAS and InGovern recommend investors reject Zee CEO Goenka’s candidature

Mumbai and Bengaluru: In a surprise development late on Monday, Punit Goenka announced his decision to step down as the managing director of Zee Entertainment Enterprises Ltd (ZEEL), just days before his reappointment to the position was to be ratified by the company’s shareholders at their annual general meeting (AGM).

A media release from the company said he will continue to serve as the chief executive officer (CEO). He will also continue on Zee’s board, provided his appointment is ratified at the upcoming AGM on 28 November.

Goenka attributed his decision to a need for dedicating time and energy to his role as Zee’s CEO. The company’s board backed his decision.

“In the long-term interest of the Company and all its stakeholders, I have approached the Board with a request to attain operational focus as the Chief Executive Officer,” Goenka said in the release.

Incidentally, Goenka’s decision to step down comes at a time when two proxy  advisory firms have recommended that investors reject his reappointment as the company’s MD. The reappointment will come up for voting at Zee’s annual general meeting on 28 November. The company’s Board had given Goenka a fresh five-year tenure as the MD starting 1 January 2025, after his current five-year tenure ends on 31 December.

The opposition from the proxy advisory firms—Institutional Investor Advisory Services (IiAS) and InGovern Research Services—was likely to make it an uphill battle for Goenka to retain the top job at the company that his father Subhash Chandra founded in 1992. The second-generation promoter joined the Zee Board in January 2005 and became CEO in 2008.

Also read | Chandra not cooperating in Zee fund diversion probe, Sebi complains to SAT

The latest move ensures that Goenka continues as the CEO of Zee even if his contention as the managing director of the company is rejected by shareholders at the AGM, as per a corporate governance expert.

“It will reflect badly on the capabilities of the Board if Mr. Punit Goenka is to continue as CEO after shareholders vote against him continuing as a Director and Managing Director,” said Shriram Subramanian, the managing director of proxy advisory firm InGovern.

Why are proxy advisors against Goenka leading Zee?

“The company’s inability to culminate the $10 bn merger with the Sony Group” is among the reasons cited by IiAS in a note dated 16 November. “From R Gopalan's letter received by IiAS in February 2024, we note that the Board had delegated responsibility for the merger to the management. We believe shareholders must hold Punit Goenka accountable for this,” said the note, shared by an investor with Mint who wished to remain anonymous. “The failure of the merger has resulted in a significant loss of opportunity for shareholder wealth creation.”

Also read | Zee and Sony split up. Now, streaming studios are sulking

IiAS has flagged that under Goenka’s five-year stint as CEO, Zee’s profits have almost halved—the company’s ebitda (earnings before interest, tax, depreciation and amortization) has declined from ₹1,630 crore in FY20 to ₹910 crore in FY24.

“Given the several governance concerns, there is lack of transparency and various pending litigations that raise doubts on the efficiency of overall governance in Zee under the leadership of Mr. Punit Goenka as the MD and CEO,” InGovern said in its note seen by Mint.

Emailed queries to Zee remained unanswered till press time.

Why Goenka faces an uphill task

While Goenka has given up his MD position, shareholders will decide at the AGM if he continues on the company’s board as a director. To be reappointed, Goenka will need more than 50% of shareholder votes in his favour. But it may not be an easy task as Zee founder and chairman emeritus Chandra owns just 3.99% of the company, and Goenka's reappointment will be decided by the public investors, many of whom consider the opinion of proxy advisory firms.

To be sure, Chandra’s low shareholding did not pose a problem in September 2020, when Goenka was last re-appointed as MD and CEO. But this time, the lineup of top shareholders of the company has seen a reshuffle.

In 2020, Chandra and his family owned 4.02% of Zee, foreign investors owned nearly 77%, insurance companies 7.26%, and mutual funds 3.73%. Retail shareholders or investors owning less than ₹2 lakh worth shares owned 4.26%.

On 28 November, Goenka and the Zee Board will face a different group of shareholders. As of 30 September, foreign investors’ share has shrunk to just 17.53%, retail shareholders now own a third of the company (33.35%) and domestic mutual funds’ ownership has jumped fourfold to 12.39%.

Also read | Mint Explainer: The collapse of the Sony-Zee merger and its wider implications

Four years ago, Invesco, the American money manager, was the largest shareholder, owning nearly 18%, followed by Life Insurance Corporation (LIC) at 4.89% and Singapore-based Amansa Capital at 3.56%.

Today, LIC is the largest institutional shareholder, owning 4.63%, followed by investment manager Vanguard, which owns 4.5%, and Norges, the world’s biggest sovereign wealth fund, which owns 3.96%.

Invesco sold its 17.88% stake for ₹4,492 crore in April 2023. Amansa Capital, too, exited in multiple tranches between late 2023 and early 2024. Many foreign investors, including the City of New York Trust, Kuwait’s sovereign wealth fund, and Dutch Asset Manager APG Asset Management Fund, have pared their stake.

Trouble at Zee

In the past four years, Zee has faced an investor revolt, the exit of many large foreign investors, a failed merger with Japanese giant Sony Corp to create a $10-billion media behemoth, lawsuits, and an investigation by the market regulator.

Between 1 September 2020 and 18 November 2024, Zee shares lost 47%, even as the Sensex, or the BSE30, gained 102%.

However, Goenka has managed to withstand all these troubles, even getting a reprieve from the Securities Appellate Tribunal, which overturned an order issued by the Securities and Exchange Board of India (Sebi) that barred him from continuing on the Board of Zee.

Board backing

To assuage investor concerns, Zee's AGM notice, dated 4 November, lists the steps Goenka has taken since the start of the year.

The Board credited Goenka for settling all pending cases with Sony without paying a fine after the two companies failed to complete the merger. The company also underlined his restructuring plans, and pointed to improved ebitda margins of 16% in July-September from 9.7% in the January-March quarter of 2024.

However, IiAS appears unimpressed. “Given his failure to achieve the previously articulated five-year plan, we raise concern over the potential success of the proposed Strategic Growth Plan that centers around Frugality, Optimization and a sharp Focus on Quality,” said IiAS.

Also read | Why Invesco pulled the plug on ZEEL’s Punit Goenka

“We raise further concerns on Punit Goenka's continuation as a director amid concerns of fund diversion and corporate governance issues, including related party transactions raised by market regulator SEBI in its initial interim order; pending disposal of the matter, we remain concerned about the legal and reputational risks for ZEEL as a consequence of this appointment,” IiAS added in its note.

Gaurav Laghate in Mumbai contributed to this story.