Mutual funds (MFs) may be still hesitant to take on India Inc head-on, but their share of votes against managements has seen an uptick in the last calendar year.

The percentage of ‘against’ votes has risen to 4.23 per cent in calendar year 2019, the highest in the past five years for which data was analyzed. The figure was 3.4 per cent in 2018. In developed markets, institutional investors typically vote against five to 10 per cent of management resolutions.

The percentage of ‘abstain’ votes, on the other hand, dipped to 10.9 per cent last year from 12.5 per cent in the year before last. Abstain votes have been as high as 20 per cent at different periods in the past.

Big is not necessarily better when it comes to voting. Only 3.3 per cent of the votes of the top 10 fund houses were cast against managements. Six of these — Aditya Birla Sun Life, HDFC MF, ICICI Prudential MF, Kotak MF, IDFC MF and Axis MF — cast less than one per cent of their votes this way.

The way Indian MFs vote assumes significance, as they have grown in clout over the years. With an equity corpus in excess of Rs 7.8 trillion, MFs are increasingly dictating market direction. Net MF inflows totalled Rs 1.65 trillion in the past two years, nearly 2.5 times that of the Rs 67,098 crore inflows from foreign portfolio investors, historically the dominant price setters.

MFs manage liquid assets for several companies, in hundreds of crores. This could, say experts, dissuade fund houses from going against the managements, as the companies in question might then withdraw the amounts parked in these funds. Also, many MFs are themselves owned by large corporates, a potential conflict of interest while voting.

Interestingly, Franklin Templeton MF, a foreign fund house, has taken the lead in voting on shareholder resolutions. In the past two years, the fund house has voted on about 14,400 resolutions, which is 22 per cent of the total resolutions of the top 10 fund houses. It also tops with 1,259 or 8.7 per cent of ‘against’ votes.

“As long-term investors, corporate governance and management quality are of great interest to us. Franklin Templeton has a clearly defined proxy voting policy based on well-known principles of governance such as independence of the board, prudent capital allocation decisions, minority shareholder friendliness and fair practices and adherence to well-established environmental, social and governance principles,” said Anand Radhakrishnan, managing director & chief investment officer – Emerging Markets Equity - India, Franklin Templeton.

Globally, institutional investors, including activist funds, tend to collaborate and put pressure on the management for changes or look for changes in the top management. The level of collaboration among long-term institutional investors such as pension funds is even higher. In the US, for instance, it is common for funds to take a stand on issues such as climate change, board diversity and appointment of directors.