Sebi tightens the procedural guidelines for proxy advisory firms

The Securities and Exchange Board of India (Sebi) on Monday tightened the procedural guidelines for proxy advisory firms. 

The new norms are aimed to bring in more transparency, avoid conflict of interest, and give companies a chance to provide their viewpoint. Proxy advisors are firms that give voting recommendations on resolutions floated by companies to their clients, who are typically institutional investors, such as mutual funds and private equity.

Experts said the new guidelines will put a greater onus on proxy advisors, which over the years have gained clout when it comes to influencing how shareholders vote on key resolutions floated by India Inc.

Sebi has directed proxy advisors to share their report simultaneously with their clients and the company.

“If the company has a different viewpoint on the recommendations stated in the report of the proxy advisors, then proxy advisors, after taking into account the said viewpoint, may either revise the recommendation in the addendum report or issue an addendum to the report with its remarks, as considered appropriate,” Sebi has said.

The regulator has also directed proxy advisors to alert their clients, within 24 hours of receipt of information, about any factual errors or material revisions to the report.

Sebi has also said proxy advisors should set up clear procedures to disclose, manage and mitigate any potential conflicts of interest resulting from other business activities including consulting services.

Further, proxy advisors will have to formulate the voting recommendation policies and disclose the updated voting recommendation policies to its clients. Sebi has asked proxy firms to review their policies at least once annually.