Role of Proxy Advisory Firms in India


Shriram Subramanian, Founder and MD, InGovern Research Services Pvt. Ltd. shares his insights about the Role of Proxy Advisory Firms in BSE Broker’s Forum magazine, the excerpts of which are given below:

What is proxy advisory service?

Proxy advisory involves making vote recommendations for shareholder meetings: AGMs, EGMs, Postal Ballots and Court-Convened Meetings. InGovern pioneered the concept of proxy advisory services in the year 2010 in India. InGovern analyses each proposal placed for shareholder approval and makes vote recommendations, either FOR, FOR*, AGAINST and ABSTAIN.

Who are your clients?

Any shareholder or lender could be clients of proxy advisory firms. Mutual funds, pension funds, insurance companies, commercial banks, hedge funds, foreign institutional investors, private wealth managers, family offices and HNIs are our potential clientele. Even the company whose meeting is being analysed could be a client as they are interested in what their investors are being advised on.

What are the other services provided by you?

InGovern also provides other related services including bespoke corporate governance research, risk monitoring and directors’ and executive compensation analysis.

Why should investors rely on proxy advisory firms?

  • Proxy advisory firms add substantial value by highlighting corporate governance issues at investee companies that could else reduce investors’ wealth.
  • The services offered by proxy firms reduce operational costs for institutions. Often institutional investors lack sufficient resources to investigate issues themselves.
  • By engaging positively with the companies, proxy advisory firms help in airing concerns on behalf of investors and take a stance without hampering management access for fund managers and analysts. There could be situations where the institutional investor is managing funds of the corporate where contentious resolutions are placed in front of shareholders.
  • InGovern also brings in best practices from around the world.

Should investors be bothered about routine governance matters in companies?

Research has shown that companies that adhere to better corporate governance deliver better returns and thereby help increase shareholder’s value. Activist investors ensure that the management is sensitive to their concerns. Also, for institutional investors like pension funds, mutual funds etc. it is a fiduciary duty to ensure that the money of beneficiary investors is safe and invested in sound companies with strong corporate governance in place.

What are the governance structures in Indian companies?

InGovern published a detailed report Proxy Season 2012 Analysis that analysed top 100 companies. This report was well received by all market participants. Some observations were:

  • One in five directors attend less than 75% of board meetings
  • 9% of companies were non compliant with Clause 49; with less than 50% independent directors (ID), with no independent chairman
  • 10% of companies have board sizes of either more than 16 directors or less than 7 directors
  • 22% of IDs have served on the board for more than 9 years
  • Audit committees of only 45 companies comprise only of IDs
  • 9% of IDs have outside directorships in more than 10 public companies
  • 53 companies have had the same auditors for more than five years

What are the successes that InGovern has had?

In 2011, we opposed the payment of USD 650,000 by Sun Pharma to the son of the CMD, we were the only voice though there are more than 40 equity analysts following Sun. In 2012, InGovern recommended voting against Akzo Nobel proposal to merge 3 unlisted subsidiaries at high valuations. Many institutional investors opposed the move. Similarly, we recommended against Escorts restructuring which was opposed by many institutional investors. In the past few months, we have raised the issue of royalty payment by Gujarat Ambuja and ACC to Holcim and the increase in royalty by HUL. We have opposed the Pantaloon demerger where DVR shares are considered on par with equity shares.

What are the regulatory imperatives?

We highlight issues that require regulatory changes and it is heartening to note some steps that SEBI has taken to address these. Some issues we have raised:

  • Disclosure of financials of merging unlisted companies, valuation report, fairness opinion, etc in electronic format.
  • Holding of shareholder meetings in large cities where investor base is high.
  • Strict enforcement of sending notices at least 21 days ahead of shareholder meetings.

What measures can responsible institutional investors take to foster better corporate governance?

Investors can take up the following actions:

  • Communicate with management and the Board of Directors on governance related issues
  • Make proposals to the company about possible changes to the capitalization, ownership structure or its operations
  • Seek representation on the board
  • Nominate individuals for election to the boards of directors
  • Engage in election and proxy contests
  • Put forth shareholder proposals to be put to vote at meetings
  • Speak with third parties regarding the companies and engage proxy advisory firms

What can the broking community do to foster better corporate governance?

The broking community should realize that trust is vital to widen the investor base, increase depth & breadth of the market and a consequent rise in trading volumes. A good corporate governance environment means better access to capital for Indian companies and enhanced trust by investors in Indian capital markets.


The article can also be read from this link: BSE Broker’s Forum Magazine