Kotak Mahindra Bank CEO & MD Uday Kotak’s call for regulation of foreign proxy advisory firms in India has found favour with experts who believe it will create a level-playing field but have warned that the right of foreign investors to vote must be respected.
Kotak on Monday said concentration of voting through global proxy advisory services leads to concentration of voting power in the hands of a few global agencies and added that foreign players in India should be regulated in the same way as local proxy services are regulated. His comments came after nearly 23 per cent investors voted against re-appointment of Deepak Parekh as a director on the HDFC board based on the advice of two US proxy advisory firms.
Proxy advisory firms are independent research outfits and provide investors with research and data about companies and opinion on issues on which shareholders have to vote on. In India, such home-grown firms have to register with market regulator SEBI and are regulated by it while global companies have no such obligation.
Significant contribution
Experts point out that in the past, these firms have done significant work and have also flagged issues in companies such as Infosys and even the stand-off between Cyrus Mistry and Ratan Tata. But, if companies or directors don’t do their jobs or fail to show up for meetings, then shareholders will take action, they noted.
“Regulation is not a gagging order. If we are seeking funds from foreign investors in our companies, then we also need to respect their right to vote,” noted Shriram Subramaniam, MD, InGovern.
Arvind Mahajan, Senior Partner, Samiksha Advisors, pointed out that proxy advisory firms have raised many corporate governance issues in various companies. “They have an important role to play. But foreign firms should also be regulated by SEBI, which is already regulating Indian firms,” he said, pointing out that even in the US, the Securities and Exchange Commission looks into such firms.
JN Gupta, Managing Director, Stakeholders Empowerment Services, said proxy advisory firms, both Indian and foreign, do not have much direct impact on the voting outcome of general meetings in India, except in related-party transactions, as in most cases promoters’ shareholding is usually significant and non-institutional shareholders’ participation is low.
“However, investors’ anger and dissatisfaction demonstrated through negative votes can make the company management sit up and notice,” he said, while calling for regulation of foreign proxy advisory firms as well to create a level-playing field.