Institutional investors need to participate in investee firms' governance

To improve business practices at listed companies, the Securities and Exchange Board of India (Sebi)’s international advisory board (IAB) has suggested a new code to enable institutional shareholders to participate in the governance of the investee firms. The board has also asked Sebi to look into the issue of providing compensation to investors affected by insider trading, while reiterating a suggestion for ‘naming and shaming’ of those involved in such offences.

On proposed regulations for listing of start-ups, the board pitched for a balanced regulatory approach towards valuation of start-ups, as the conventional one might not be applicable in the early state of operation.

On the proposed merger of commodities market regulator Forwards Markets Commission with Sebi, it has asked the latter to “conduct a thorough due-diligence and gap analysis before articulating its vision for the commodity derivatives segment”. “The emphasis during this period should be on avoiding any crisis in the market. Market development may be visited only after fully understanding the strengths and weaknesses of commodities markets,” the IAB said.

On participation of institutional investors in the governance of listed companies, Sebi has already mandated mutual funds to disclose specific rationale supporting their voting decision on quarterly basis.

IAB has now recommended that Sebi in coordination with other authorities may introduce a Code (on the lines of Stewardship Code of UK) based on the approach of 'comply or explain', wherein the investors can ask the companies to either follow their suggestions or explain the non-compliance.