Officials of Life Insurance Corp. of India (LIC) informed executives of Zee Entertainment Enterprises Ltd at a shareholder outreach programme that they would not back another five-year term for Punit Goenka as managing director, three people aware of the matter said.

Goenka resigned as MD of Zee on 18 November, a month after its board recommended another five years for him as MD and CEO, and 10 days ahead of an annual shareholders' meet, after which the voting outcome on his candidature would be announced. The decision followed the view expressed by its largest shareholder, as well as recommendations by two proxy advisors to reject his continuance at the helm of the media conglomerate.

Goenka said he wanted to focus entirely on his operational responsibilities and offered to continue as the company’s CEO, which the Zee board accepted.

LIC owns 4.63% stake in Zee, while founder and chairman emeritus Subhash Chandra and his family own 3.99%. Out of about 15 mutual funds which together owned 12.4% in Zee at the end of the September quarter, at least two holding more than 1% each backed LIC, the people cited above added.

Calvert Research and Management, part of Morgan Stanley Investment Management and the City of New York Group Trust, with about $200 billion of assets under management, rejected Goenka's reappointment, according to filings reviewed by Mint. "He has resigned as MD of the company and continues as CEO. Shareholders may question if any revision in the remuneration structure is warranted due to change in his role and scope of his responsibilities," reasoned Calvert. "The proposed pay is competitively positioned in comparison to industry peers. There is scope to provide exact weightage assigned to each identified financial parameter. 2.5% of net profit as an upper limit for proposed remuneration can lead to large range of payouts". Mint independently could not ascertain the ownership of Morgan Stanley and City of New York Trust in Zee.

However, not all large investors were against Goenka's reappointment. According to filings seen by Mint, Norges, the world's largest sovereign wealth fund, which owns 3.96% in Zee, approved Goenka's reappointment as MD and CEO.

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

Meanwhile, proxy advisors Institutional Investor Advisory Services (IiAS) and InGovern Research Services have recommended voting against Goenka's continuance, flagging alleged governance lapses, the failed merger with the Indian unit of Sony Corp., declining profits, and erosion of shareholder value. Large institutional investors, who collectively hold about 37.71% of Zee, usually rely on proxy advisors when voting on resolutions by investee companies.

Queries emailed to spokespersons of LIC and Zee on 19 November remained unanswered till press time.

LIC's disapproval

This is not the first time that LIC is voting against a board appointment at Zee. Since September 2021, it has voted against the reappointment of three directors at Zee, marking a rare episode of dissent by the state-owned insurer. LIC is India's largest insurer, with ₹51.2 trillion ($600 billion) of assets under management as of 31 March, 2024.

According to disclosures made by the public sector insurance giant, LIC voted against the reappointment of Manish Chokhani and Ashok Kurien as directors in September 2021. However, both withdrew their nominations hours before the shareholder meeting, making the resolutions seeking reappointment infructuous. In July 2023, LIC again rejected the reappointment of independent director Alicia Yi.

"As a member of the NRC, she was responsible for ensuring the board skill diversity and experience. Moreover, it is also observed that the board, of which she was a member, failed to address and adequately deal with governance concerns raised by erstwhile independent directors," said LIC. Yi failed to gain support for her candidature, as 58% of shareholders voted against the partner at Korn Ferry, the executive search firm.

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

Since 2021, Zee has faced an investor revolt, the exit of many large foreign investors, a failed merger with Japan's Sony to create a $10-billion media behemoth, lawsuits, and an investigation by the market regulator. Zee shares have lost 60% value over the course of Goenka's current term, which started on 1 January, 2020. Sensex has gained about 86% over the same period.

At Thursday's shareholder meeting, shareholders are to ratify two proposals regarding Goenka: one to reappoint him as a director; and second, to reappoint him as the company's MD and CEO for five years. With Goenka stepping down as MD and withdrawing his consent to be reappointed, the second resolution has become infructuous.

CEO role

Company law experts say that unlike appointing an MD, appointing a CEO is the prerogative of the company's board and does not require shareholder approval. In other words, Zee will not have to approach shareholders to ratify Goenka's appointment as the CEO.

"As such, the appointment is of a Key Managerial Personnel (KMP) and not a company director. The appointment and remuneration of the CEO would be approved internally by the company and not by shareholders, subject to requisite disclosures," said Gaurav Pingle, a practising company secretary.

Even if shareholders defeat the resolution to reappoint Goenka as director, it will not affect his appointment as CEO.

"By voting against the reappointment of Mr Punit Goenka, shareholders would be signalling that they are seeking a leadership change. While Mr. Punit Goenka may be showing skin in the game by giving up the managing director position and continuing to be CEO, this is not a desirable outcome for shareholders," said Shriram Subramanian, the managing director of proxy advisory firm InGovern.

Goenka’s achievements

Zee said in a press release that Goenka will dedicate his focus to the CEO's role and has already formed a new lateral team structure to drive growth. He has visited all of the company’s language markets to understand consumer preferences and resharpen the company’s focus, the company said. He is also focussing on newer monetization avenues to boost the advertising revenue, as per the Zee press release.

And read | For Zee’s investors, a teary two-year ride

In the 4 November AGM notice, Zee listed the steps taken by Goenka as MD and CEO to create shareholder value. This included settling all pending cases with Sony for the failed merger without paying any fine. The company also highlighted Goenka's restructuring plans, including improving Ebitda margins from 9.7% in the January-March quarter of 2024 to 16% in July-September.

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