Study on Proxy Advisory Firms & Impact on Corporate Decisions

Abstract

The voting decision by institutional investors of whether to vote “for†or “against†the resolution at general meetings is increasingly been driven by the recommendations of proxy advisory firms. This shareholder activism will improve the corporate governance culture, transparency in disclosures and level of engagement with stakeholders across companies in India. The introduction of Companies Act and SEBI LODR Regulations made voting mandatory by institutional investors thereby enabling investors to freely have their say in corporate decisions. The study undertaken shows that proxy advisory firms are highly influential over voting outcomes, however, corporates can no more predict the votes of this group of shareholders, as they seem to be making an attempt to increase their participation in an informed manner and have no clear fiduciary duty to act in best interest of shareholders and may be subject to conflicts of interest. The need is to adopt standards to eliminate global proxy advisory firms accuracy, transparency, and accountability and for Indian corporates to act rationally while proposing an item of business and address concerns of advisory firms.