Contrary to what the UK-based hedge fund Children Investment Management Fund (TCI) did in case of Coal India, Indian mutual fund houses say they prefer to exit if they do not like decisions of companies (they are invested in) rather than wait to contest the resolutions in shareholders' meetings.
Domestic fund houses have defended their decision of abstaining from half of the companies' resolutions in the previous financial year. They say it's in accordance with their voting policy.
Most of the industry's CEOs Business Standard, spoke to said they would rather exit the company upon not liking some of the management's decision. Interestingly, TCI has dragged Coal India to court as it alleged illegal interference of the government in company's functioning. TCI is a minority stakeholder in the company owning a little over one per cent in the public sector company.
According to a report by InGovern Research Services, a proxy advisory firm, in almost half of the resolutions of companies fund houses have abstained from voting during the financial year 2011-12.
Chief executive officer of a fund house, which abstained from all resolutions during the year, said, "It's not mandatory for us to vote in every resolution. What Sebi mandated was to disclose our voting policies. Voting or not voting is a call which our investment committee takes as per the policy."
He added that in the current financial year if there were some changes in policy the investment team would be pro-active and take voting decisions accordingly.
During the year, there were 4,716 meetings in which 23,482 resolutions were passed. Out of them, fund houses voted 'For' in 11,894 resolutions but managed to muster courage to vote 'Against' only in 321 resolutions or one per cent of the total number of resolutions. On top of it, for rest of the resolution (48 per cent) fund houses preferred to abstain from voting.
According to industry officials, during shareholders' meeting, most of the resolutions get voted in favour because of their nature. "For instance, most of them are either appointment or re-appointment of directors, dividend declaration among others. Strategic decisions are rarely discussed in such meetings. That's the reason which makes percentage of voting in 'For' higher," he says.
Meeting covered in the report include Annual General Meetings (AGMs), postal ballot (PBs), court convened meetings (CCMs) and extraordinary general meetings (EGMs) of the investee companies between April 2011 and March, 2012.
However, there is another factor too which did not let fund houses participate. "Registering our presence or do proxy voting in all resolutions add additional costs. This is why industry prefers to abstain," explains another CEO of a mid-sized fund house.
