Newly Listed Tech Firms Groww, Physicswallah, and Others Face Institutional Opposition Over ESOP Decisions

As per Moneycontrol report, Newly listed tech companies like Groww and Physicswallah are encountering resistance from institutional investors regarding their Employee Stock Option Plans (ESOPs).  

Concerns around potential dilution and fair pricing have led to notable voting opposition, although support from retail investors and promoters helped these resolutions pass. 

Institutional Concerns Over ESOP Structure and Dilution Impact 

In recent shareholder meetings, institutional investors have voted against ESOP ratifications in companies such as Groww, Physicswallah, Capillary Technologies, Saatvik Green Energy and WeWork India. Key issues cited include potential equity dilution, exercise pricing, and limited disclosures. 

For instance, 62% of institutional voters opposed WeWork India’s ESOP amendment, although the presence of 49% promoter backing helped secure overall 82% approval. Similarly, Groww faced 48% institutional opposition but passed with 90% support due to retail investor votes. 

Voting Patterns Reflect Alignment Issues 

Institutions are signalling dissatisfaction where there is a lack of alignment between employee, management and shareholder interests.  

Companies that grant deeply discounted stock options or design plans focused on a limited group of individuals tend to draw red flags.  

Experts also highlight the need for transparency in structure, including vesting schedules, pricing mechanisms, and employee coverage. Failure to address these dimensions has caused resistance among institutional shareholders. 

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Retail Investors and Promoters Tilt Outcome 

Despite opposition from institutional shareholders, all ESOP resolutions reviewed were passed thanks to backing from retail investors, and where applicable, promoters.  

Capillary Technologies, for instance, witnessed 50% institutional resistance, but 89% overall approval due to retail support.  

Sebi regulations require newly listed companies to ratify ESOPs in their first post-listing shareholder meeting, making institutional backing a critical element of governance legitimacy. 

Need for True and Fair ESOP Disclosures 

Governance experts underline the importance of accurate disclosures and limiting board discretionary power in ESOP programmes.  

Companies attempting to dynamically alter ESOP terms after listing without detailed shareholder approval risk breaching trust. Transparency around coverage, payout logic, and limit on dilution helps avoid conflicts and strengthens alignment across stakeholders. 

Conclusion 

Recent shareholder meetings at newly listed tech companies indicate growing scrutiny of ESOP structures by institutional investors. While resolutions were passed, mainly due to retail support, governance observers emphasise fair disclosures and improved alignment to avoid such opposition in future shareholder engagements. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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