Shareholder activism in Indian companies is a relative rarity in comparison to what is now considered the norm in developed countries. The Securities and Exchange Board of India (SEBI), the capital market regulator in India, believes its domestic mutual funds have a bigger role in public shareholder activism and with the introduction of new regulations wants to see a step-change in attitudes and behaviour.
According to a recent Economic Times article (17th Nov) “SEBI wants fund houses to play an active role in ensuring superior corporate governance of public listed companies in order to restore faith and protect the interest of investors.” The comments emerged after a high-level meeting Friday involving Sebi, ICAI, officials from fund houses and investor associations. At the meeting, SEBI also expressed its concerns over fund houses not actively exercising their voting rights at shareholder meetings.
The market regulator may also require mutual funds to disclose their participation and voting to the public. This method is very similar to a rule by Securities and Exchange Commission (SEC) in US, which mandates that mutual funds to disclose their proxy voting record. SEBI hopes this could prove to be the stepping stone towards good shareholder activism in India, which could result in superior corporate governance in public listed companies. Although mutual fund officials claim that a handful of them are prompt in questioning controversial moves of companies, only a few cases were publicly discussed.
SEBI wants mutual funds to co-operate and share information amongst them so that transparency could be enhanced, as it expressed concern over fund house’s level of participation at shareholder meetings. In India, the general approach towards proxy voting is generally passive with fund managers instructing custodians to execute their votes and requiring little more than a confirmation from custodians that they have been duly lodged. The attitude of mutual funds to ‘live and let live’ could fade away after the introduction of this regulation.
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