Shareholder Rebellion: Wipro's Controversial Severance Package Sparks Governance Concerns Amidst Financial Struggles

In a striking episode that underscores rising investor activism and concerns over corporate governance, more than three-fourths of Wipro Ltd’s public shareholders voted against awarding $4.33 million (?36.15 crore) in cash severance to former chief executive officer Thierry Delaporte. This marked a significant moment of investor displeasure for a company that is generally perceived to prioritize robust governance practices.

Investor Rebellion Over Severance Package

A total of 78.4% of Wipro’s public shareholders opposed the cash severance payment to Delaporte, according to voting records published on the Bombay Stock Exchange (BSE). Despite this opposition, the resolution passed with an overall 90% vote in favor, primarily due to the 73% promoter holding.

Delaporte, who resigned on April 6 following a request from Wipro chair Rishad Premji, received this unprecedented severance as part of his departure package. This payout, along with the accelerated vesting of unvested stocks worth ?31 crore, brought his total earnings for the previous year to a staggering ?167 crore ($20.1 million), positioning him as one of the highest-paid CEOs in India's IT services sector.

Institutional and Retail Shareholders’ Concerns

At least seven major foreign institutional investors, including the UK’s largest fund manager, opposed the decision. These investors highlighted a lack of transparency in the decision-making process. London-based Legal & General Investment Management, managing $1.5 trillion in assets, cited "insufficient disclosure" and "certain aspects of the reward justification" as reasons for their opposition.

Approximately 80% of institutional shareholders, who own 10.5% of Wipro, voted against the severance package. Similarly, about 70% of retail shareholders who voted also opposed the decision. Despite retail investors holding 16.5% of the company, only 11% participated in the vote.

Prominent institutional investors like the Canada Pension Plan Investment Board, British Columbia Investment Management Corporation, and Nordea Asset Management also voted against the proposal, emphasizing the need for greater transparency to evaluate the associated risks and opportunities.

Unclear Rationale Behind the Payout

Delaporte’s resignation, 14 months before his tenure was to end, prompted scrutiny. Wipro justified the severance as recognition for his contributions and adherence to post-engagement obligations like confidentiality and non-solicitation. However, proxy advisory firms questioned the rationale for such a large payout, especially for obligations considered standard in executive contracts.

Institutional Investor Advisory Services India Ltd (IiAS) and InGovern Research noted the lack of clarity around whether the severance was part of Delaporte's employment contract. They recommended shareholders reject the proposal, underscoring the need for Wipro to clarify the terms of his severance.

A Broader Context of Declining Performance

Wipro’s financial struggles in the past year added to the controversy. The company reported a 3.8% decline in revenue to $10.8 billion for the fiscal year 2023-24, alongside a decrease in profit and headcount. This performance stood in stark contrast to the growth seen by rivals Tata Consultancy Services Ltd and Infosys Ltd.

Following his resignation, Delaporte sold Wipro shares worth ?34.5 crore, bringing his total earnings from share sales to ?70.63 crore ($8.5 million). Over his nearly four-year tenure, Delaporte sold Wipro shares worth ?83.7 crore, totaling ?118.2 crore ($14 million) from share sales.

Comparisons with Predecessors and Peers

Delaporte’s severance package far exceeded that of his predecessor, Abidali Neemuchwala, who earned $4.4 million in his final year. Neemuchwala’s remuneration included salary, variable pay, and the cost of accelerated vesting of unvested share options.

Other executives who joined Wipro under Delaporte's leadership also benefited significantly from share sales. Anis Chenchah and Stephanie Trautman, who have since resigned, sold shares worth ?37.77 crore and ?7.39 crore, respectively.

Looking Ahead

As Wipro navigates its financial challenges and transitions under new CEO Srinivas Pallia, the significant backlash from public investors over Delaporte’s severance serves as a crucial reminder of the importance of transparency and accountability in corporate governance. The episode highlights a growing trend of investor activism in India, with shareholders demanding clearer justification for executive compensation, particularly in times of organizational underperformance.

Wipro’s handling of this situation will be closely watched as an indicator of its commitment to governance standards and shareholder interests.

Conclusion

This episode at Wipro Ltd. serves as a powerful reminder of the essential role transparency and governance play in maintaining investor trust and confidence. It also highlights the increasing influence of public and institutional investors in demanding accountability from corporate leadership, especially in the Indian stock market. As Wipro moves forward, the lessons learned from this situation will be crucial in shaping its approach to governance and investor relations in the future.

For investors and companies alike, this case underscores the importance of clear communication, ethical decision-making, and the need for a robust framework that aligns executive compensation with company performance and shareholder value. The voices of investors have never been more critical, and their active engagement is shaping the future of corporate governance in profound ways.

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Keywords: Indian Stock Market, NSE, NSE Stock Analysis, Stocks, Stocks to Buy, Investment, Traders, Trading, Wipro, CEO severance

Disclaimer:

The information presented in this article has been compiled from multiple sources across the internet. It is intended for informational purposes only and should not be construed as investment advice. Any investment decisions should be made in consultation with a reputable financial advisor. The author and publisher of this article are not liable for any losses incurred by investors or traders as a result of the information provided.