There is suddenly a clamour for regulating the international proxy advisers firms in India, which advise investors, especially foreign institutional investors, to vote for or against a particular resolution of a corporate. Since Indian corporates have large foreign institutional holdings, there is a fear that global proxy advisory firms would play a big role in tilting the votes. In India, a debate started last week when Deepak Parekh, who built the HDFC Group, barely managed to get a majority vote in a resolution seeking his continuation as director in the HDFC Ltd. Globally, these firms have wider acceptability. Then, why is there this fuss in India about these firms?
- Any proxy advisory firm's job is to give its recommendations. It is ultimately up to the investor(s) to decide whether he wants to go with the advice of the proxy advisory firm or not.
- India has attracted huge inflows through portfolio investments in the last two decades. Many of the foreign investors have been present in India for years. These investors come with decades of history and a global perspective on seeing the journey of corporates, sectors, and industries.
- The domestic proxy advisory firms have been raising many governance issues in the Indian corporate sector, but there is no voice supporting their moves. In fact, the domestic institutions especially mutual funds, insurance companies hardly go by their advices. The adoption is very little. Nobody wants to go against the promoters in India. The corporate sector or the industry leaders, association or at times the board remains silent on issues of grave corporate governance lapses.
- Many supporters have cited the uniqueness of Indian corporate sector to put forward the point that the international proxy advisory firms are not in sync with the Indian ground realities. Take for example; the fact that they reasoned that "we in India know the contribution of Parekh for the HDFC Group". This may be true, but we shouldn't judge foreign proxy advisory firm with just one decision. Many forget that the independence of the board (with well qualified independent directors) is also unique (often comes under questioning) in India. In India, promoter-driven or professional-driven companies (with star CEOs or Chairman) still have to cover a long distance when it comes to good corporate governance standards.
- The recommendations of the foreign proxy advisory firms will not change in any way even if they are registered in India tomorrow.
- HDFC's Parekh got 77.3 per cent voting as against the minimum 75 per cent. There will always be investors who will vote against a resolution. You just cannot expect all the investors to act in the same manner.