Mutual funds (MFs) have bettered their participation in shareholder resolutions but are still hesitant to take on India Inc.
The percentage of ‘abstain’ votes dipped to 10 per cent for the quarter ended September, from 20 per cent in the third quarter of 2014-15. The percentage of votes against managements, however, was only three per cent for the three-year period.
As for the top 10 fund houses, only 2.6 per cent of their votes went against managements. Five — Aditya Birla Sun Life, ICICI Prudential MF, Kotak MF, Reliance MF
and HDFC MF
— have cast less than one per cent of their votes this way.
In developed markets, institutional investors typically vote against five to 10 per cent of management resolutions.
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.
The way Indian MFs vote assumes significance, as they have grown in clout over the years. With equity corpus in excess of Rs 7 lakh crore, MFs are increasingly dictating market direction. They put in Rs 1.58 lakh crore in the past two years, thrice that of the Rs 52,000 crore inflow from foreign portfolio investors, historically the dominant price setters.
Interestingly, Franklin Templeton MF, a foreign fund house, has taken the lead in voting on shareholder resolutions. In the past three years, the fund house has voted on a little more than 14,000 resolutions, more than twice the average of the other nine in the top 10 list. It also tops with 1,193 or 8.2 per cent of ‘against’ votes.
“Given our fundamental and bottom-up style of investing, corporate governance and management quality are of great interest to us. We have a clearly defined proxy policy that includes views of third-party agencies, and have a separate department that does research on agenda items,” said Anand Radhakrishnan, chief investment officer at the fund house.
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.
“Indian funds should take a stand on routine but important corporate matters such as the appointment of directors, rather than confining themselves to voting on matters that have large-scale implications or where there is a change in capital structure,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a corporate governance advisory.
The voting pattern also assumes importance in the light of the increasing stress on corporate governance. The Uday Kotak-led committee on this issue had recently put forth a proposal on a common 'stewardship code’ for institutional investors. At present, there is no provision for such a code under the Securities and Exchange Board of India (Sebi) regulations.
Sebi had in March 2010 asked MFs to play an active role in ensuring better corporate governance of listed companies. Asset Management Companies have to disclose voting policies on their respective websites and in their annual reports since 2010-11. “The arrival of home-grown advisory firms is an indication of the growing importance of corporate governance in India. As the MF
industry grows, so will shareholder activism,” said Radhakrishnan.