One of the world’s largest institutional investors, California Teachers Retirement Fund, has decided to vote against the appointment of Yasir Othman Al-Rumayyan as an independent director to the board of Reliance Industries Ltd., according to information on the fund’s website.
Al-Rumayyan has been governor of the Public Investment Fund of Saudi Arabia since 2015. He is also the chairman of Saudi Aramco. For two years, the Indian energy-to-telecom to retail giant has been in talks to sell a substantial stake in its oil-to-chemicals business to Saudi Aramco.
CalSTRS is the largest educator-only pension fund in the world with assets about $318.4 billion as on Aug. 31. It held 53.07 lakh fully and partly paid shares of Reliance Industries valued at $119.5 million as of June 30, 2020, according to the last available disclosure on its website.
Interestingly, while the company’s management recommended to vote in favour of Al Rumayyan, in the final pre-approved vote the fund has decided to go against the resolution based on the recommendation of international proxy advisory firm Glass, Lewis & Co.
Glass, Lewis makes voting recommendations to over 1,200 investors across the world. It has recommended voting against Al-Rumayyan “based on the director’s status as an independent director” of RIL.
Reliance Industries appointed Al-Rumayyan as additional director on July 19 and the shareholder vote to confirm his appointment as independent director, for a period of three years, is underway. The voting will end on Oct. 19.
In the notice to shareholders, RIL said “in the opinion of the board”, Al-Rumayyan fulfils the conditions for appointment as independent director as specified in the Companies Act, 2013 and SEBI’s Listing Regulations.
The company said given his extensive knowledge and experience in the oil and refining sector, his understanding of and position in the geopolitics of oil and global finance as well as his educational background, the appointment of Al-Rumayyan as an independent director is in the interest of the company.
But Glass, Lewis has raised concerns about Al-Rumayyan being designated as independent director.
In a detailed note reviewed by BloombergQuint, the proxy advisory firm pointed out that:
Al-Rumayyan serves as the governor of the Public Investment Fund, an entity within the Saudi Arabian government.
He serves as an adviser to the General Secretariat of the Cabinet of Ministers of Saudi Arabia.
He also serves as non-executive chair of Saudi Arabian Oil Company (“Saudi Aramco”), 98.18% owned by the Saudi Arabian government.
Reliance Industries is currently in discussions with Saudi Aramco to sell 20% of its oil-to-chemicals division.
CalSTRS did not respond to BloombergQuint’s query for a comment. An email to Reliance Industries spokesperson also remains unanswered.
Other Concerns Regarding RIL Board Independence
Reliance Industries has 14 directors on its board, led by Mukesh Ambani, chairman and managing director and son of the company’s founder.
Seven directors, including Al-Ramayyan, are designated independent. While this ratio is in keeping with the law, in its proxy paper Glass Lewis has raised additional concerns about the board’s independence.
It considers only four directors to be independent: Shumeet Banerji, Arundhati Bhattacharya, RS Gujral and Adil Zainulbhai. According to the proxy advisory firm’s policies, Dipak Jain and Raghunath Mashelkar are affiliated and not independent as they have served for more than 10 years on the board.
As a result, the firm has questioned the composition of the audit committee as it has two affiliated directors, one independent director and KV Chowdary, a non-executive non-independent director, whereas its policy recommends a committee that is two-thirds independent.
Another practice under scrutiny is that of RIL executives from the accounts, finance, corporate secretarial and the internal audit departments attending audit committee meetings.
The proxy advisory firm has criticised Adil Zainulbhai, chair of the nominations and remuneration committee, for “failing to nominate a sufficient number of independent directors” to ensure board independence.
However, since none of the other directors are up for election currently, Glass Lewis said it is refraining from recommending voting against any particular director on these bases this time.
The firm said it had engaged with the Ambani company twice in February on issues related to board, company performance/strategy, environmental and social, executive structure/succession, Glass Lewis policy, material events and restructure and others.