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Last Updated : Aug 17, 2019 03:50 PM IST | Source: Moneycontrol.com

MF Wrap: Activism in corporate governance through proxy voting and institutional votes

MF activism in corporate governance through proxy voting and institutional votes has been on SEBI agenda for long.


Though corporate governance has been an oft-repeated theme, a lack of adequate governance practices has shown its turbulence effects in the ILFS default saga, with company directors failing in due diligence with suspicious nexus of auditors and rating agencies.

Many such defaults or delayed payments have followed through by various corporate debt papers that enlarge the scope of institutional shareholder activism in financial and business practice of corporates.

Large Institutional investors like domestic mutual funds are in a vantage position to checkmate doubtful corporate practices by virtue of their substantial shareholdings in listed corporates.

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MF activism in corporate governance through proxy voting and institutional votes has been on SEBI agenda for long.

“Recently, one company was planning to venture in to tyre business and they had already made the announcement. MFs voted against and they had to roll back the decision,” said a chief investment officer from one of the top 10 fund houses.

“Voting by mutual funds has become really important and companies have to listen since we form a large part of domestic institutions,” he added.

On Aug 9, Endurance Technologies reported its June quarter results in which it announced a proposed venture into manufacturing tyres for two and three wheelers.

Later in the day, the company clarified that while the management believed that the proposal for expansion into tyre manufacturing is appropriate strategy for the growth of the company, the investors expressed their reservations and requested the management to reconsider the same.

A guidance circular on Role of Mutual Funds in corporate governance of public-listed companies was brought out way back, in 2010.

The circular covered salient points on role of Mutual Funds in Corporate Governance of Public Listed Companies. Some of them are:

a) AMC can vote on matters of corporate governance, including changes in the state of incorporation, merger and other corporate restructuring, and anti-takeover provisions
b) Changes to capital structure, including increases and decreases of capital and preferred stock issuances
c) Stock option plans and other management compensation issues
d) Social and corporate responsibility issues
e) Appointment and removal of directors

f) Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular

MFs now publicly disclose their institutional approach ad role of shareholder voting process.

In informal discussions during 2009-10 with SEBI, MFs were observed to be silent investors with rare direct participation in corporate board meets and corporate voting processes.

SEBI felt MFs could join forces with other large domestic institutions to be game changer in checkmating governance and business practices of listed companies, said a former SEBI DGM who worked in its MF department during that period. MFs could be a collective voice on behalf of retail and HNI equity investors in enforcing good business practices, added the ex SEBI official.

MFs are expected to be aided by proxy advisory firms in recommendations on which way to vote for a corporate action by companies in their role as institutional investors.

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First Published on Aug 17, 2019 03:50 pm
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