Tuesday, December 6, 2011

Shareholder Activism and Proxy-Advisory Firms


One constantly hears calls for greater activism among shareholders (particularly institutional investors) as one of the measures towards enhancing corporate governance in India. A method that has been utilized in other jurisdictions such as the U.S. is through proxy-advisory firms who advise investors on how to vote on resolutions proposed by companies. The concept of proxy-advisors seems to have caught on firmly in India as well, as this report in the Economic Times suggests. There are at least two such firms in India that put out recommendations for investors to rely upon while exercising their votes for or against company resolutions.
Although it is not clear whether efforts such as these will yet have a big impact on corporate democracy in India, they may certainly have the effect of ensuring that shareholder meetings are no longer treated merely as a formality or a foregone conclusion. We are far from the days when institutional investors either simply voted along with management (or promoters) or abstained altogether from exercising their franchise. In fact, SEBI has also taken steps to ensure greater transparency in the voting process of institutions such as mutual funds. The result of these efforts might at least be that corporate resolutions will be subject to threadbare discussion and analysis before they are put to vote.

1 comment:

vswami said...

....... "Good governance goes much beyond 'tick all the boxes' approach and resides mostly in personal ethics and integrity.”

> IF ULTIMATELY THAT IS GOING TO BE SO, THEN HOW ONE COULD PRUDENTLY PROCEED ON THE PREMISE THAT ANY SUCH ADVICE, HOWSOEVER EMINENT THAT BE, CAN BE EXPECTED TO AT ALL SERVE THE INTENDED PURPOSE OF THE INVESTORS.

.... 'proxy-advisory firms' or 'voting-solutions firms' have joined the firmament of investment bankers, financial advisors, brokerages, equity analysts, et al, that serve companies, institutions, investors and markets.
..A senior executive from ITC recently called..

> ONE IS LEFT WITH AN INDELIBLE IMPRESSION THAT THE NEWLY SPRINGING UP SO CALLED ‘PROXY ADVISERS’ SERVE NOT ONLY THE 'INVESTORS'INVESTORS’,EXCLUSIVELY, BUT ALSO THE ‘INVESTEES’. SHOULD THAT BE THE REALITY, DOES NOT THE ‘INDEPENDENCE’ OF SUCH FIRMS BECOME SUSPECT? IN PUTTING FORTH SUCH A REACTION, WHAT ONE HAS IN MIND IS THE EVER HAUNTING LIKE FEAR OF ‘CONFLICT OF INTERESTS’- A MALADY COMING IN THE WAY OF RELIABILITY OF SUCH ‘ADVICES’. ANYONE, - HAVING SOME KNOWLEDGE OR EXPERIENCE IN WHAT HAS BEEN HAPPENING ALL THE TIME IN THE REALTY SECTOR, AND THE CONNECTED EFFECTIVE ROLE OF THE ‘PROFESSIONAL ADVISORS’, WHICH HAS, AS IS THE COMMON PERCEPTIION, CONTRIBUTED TO A VERY GREAT EXTENT AND RESULTED IN THE MUDDLING UP OF THE STATE OF AFFAIRS WIDELY OBTAINING IN THAT INDUSTRY,- SHOULD EXPECTANTLY BE ABLE TO OFFER USEFUL FEEDBACKS ON THE UNDERLYING WORRISOME ASPECT SOUGHT TO BE FOCUSED ON.