The role of foreign proxy advisory firms in the exit of two HDFC directors — Bimal Jalan and Bansi Mehta — and scraping through of HDFC Chairman Deepak Parekh, when resolutions for their re-election as directors were put to vote during the annual general meeting (AGM) of the mortgage firm, has come under fire. Corporates and Indian proxy advisory firms, which are already under the regulatory purview, have demanded level-playing field and regulatory oversight for foreign proxy firms.
Coming out against foreign proxy advisory firms, Kotak Mahindra vice-chairman and MD Uday Kotak said, “We have seen the concentration of voting through global proxy advisory services, leading to concentration of voting power in the hands of a few global agencies. This questions the very basis of well-run, widely held companies and diversified ownership.” Former RBI Governor Bimal Jalan and chartered accountant Bansi Mehta opted out of the voting for re-election as directors when it became clear that global proxy firms ISS and Glass Lewis and a domestic firm had advised investors to vote against their re-election and that they wouldn’t get the required 75 per cent of the votes. Deepak Parekh, who is the chairman of HDFC, managed to scrape through with 77.3 per cent vote.
J N Mehta, MD of proxy firm SES, said, “There should be level-playing field on the issue of regulation for proxy advisory firms. Indian proxy advisory firms are regulated by Sebi…why foreign firms should not be brought under regulation.” However, an institutional source said any proposal to bring foreign proxy firms under regulatory purview is likely to face opposition as India is the only jurisdiction where domestic proxy firms are under the regulatory control. In developed markets like the US, proxy firms play a crucial role in enforcing corporate governance and they act as watchdogs on behalf of institutional investors. Some of the foreign proxy firms have already set up offices in Mumbai. They are functioning in India without any regulatory oversight.
The selective targeting of companies and its directors by foreign proxy firms came under fire. When violations in corporate governance norms and questionable practices were reported in some Indian firms like ICICI Bank, foreign proxy firms did not come out with any advisory. “They can’t resort to hit-and-run tactics,” said a senior official with a leading fund house. Foreign proxy firms had cited the large number of directorships as the reason for voting against Parekh. “While the demands of each board will vary, and the capacity of each person will vary, holding the equivalent of more than six directorships with publicly listed companies may make it challenging for a director to devote adequate time to the affairs of each company,” ISS had said in its recommendation.
Sebi has defined proxy adviser as any person who provide advice, through any means, to institutional investor or shareholder of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items. “Proxy advisers are required to obtain registration from SEBI under RA Regulations. All the provisions of Chapter II, III, IV, V and VI of RA Regulations shall apply mutatis mutandis to the proxy adviser,” Sebi norms say. As per the norms, proxy adviser should disclose the extent of research involved in a particular recommendation and the extent and/or effectiveness of its controls and procedures in ensuring the accuracy of issuer data. “It should also disclose policies and procedures for interacting with issuers, informing issuers about the recommendation and review of recommendations…” said an institutional source.