SEBI forms panel to review rules for proxy advisory companies

The Securities and Exchange Board of India (Sebi) will carry out a comprehensive review of rules for proxy advisory firms — companies that provide recommendations to institutional investors on whether to vote for a corporate action or not, said two people familiar with the development. 

The regulator has formed a committee to review the norms which will be headed by Sandeep Parekh, former executive director of Sebi and founder of Finsec Law Advisors. 

The other professionals in the panel include Ashwani Bhatia, chief executive of SBI Mutual Fund, Monika Halan, consulting editor of Mint and J N Gupta, managing director of Stakeholders Empowerment Services (SES) among others. This is the first such exercise in four years. 

At present, there are no specific regulations for proxy advisory firms but they are covered under research analysts regulations. 

“The committee is expected to meet to soon and will also have to review the functional areas including the rights and obligations of proxy advisors firms,” said a person familiar with the development. 

Sebi notified the new regulations on research analysts which covered proxy advisory firms in 2014. There are three domestic proxy advisory firms and one global proxy advisory firm registered with Sebi. 

Much before the rules came in these proxy firms were operational in India. In 2010, Ingovern Research Services became operational, followed by Institutional Investor Advisory Services in 2011 and SES in 2012. This month, US proxy firm Institutional Shareholder Services (ISS) got itself registered with Sebi. 

Proxy Advisory firms have played a vital role in influencing institutional voting decisions and corporate governance choices to a great extent. 

“Proxy advisory firms have been instrumental in bringing corporate governance issues to the fore. Complacent boards of Indian companies are under greater scrutiny since we started eight years ago,” said Shriram Subramanian, founder and MD of InGovern Research Services. “Director attendance, tenure of independent directors, compensation, related-party transactions and valuations during corporate restructurings have been hot button topics in the past few years that investors have raised.” 

“Investors are realising that voting with the feet doesn’t work,and one needs to bring about change in boards and companies. It is felt that institutional investors are the eventual asset owners and taking the decisions,” Subramanian added. 

In the US, proxy advisory firms are not regulated by the Securities Exchange Commission though they have greater influence on voting decisions. 

Amit Tandon, managing director of Institutional Investor Advisory Services said: “It’s a good time to pause and look at where we are in this governance ecosystem. It’s a good step to review the regulations.” 

Couple of months ago, US proxy advisory firm ISS advised investors to vote against the resolution to reappoint Deepak Parekh as director on the board of HDFC, India’s largest mortgage firm, as he is on the boards of eight other companies and time constraints may prevent him from discharging his duties effectively. #casansaar (Source - Economic Times)