Exit firms rather than contest resolutions: MFs

According to sector’s executives, abstaining from voting at shareholder meeting is in accordance with policy

Contrary to what the UK-based hedge fund The Children’s Investment Fund (TCI) management did in case of Coal India Ltd, mutual fund houses in India say they prefer to exit if they do not like decisions of companies they are invested in, rather than waiting to contest the resolutions in shareholders’ meetings.

Domestic fund houses have defended their decision of abstaining from half of their companies’ resolutions in the previous financial year. They say it’s in accordance with their voting policy.

Most of the chief executives in the sector that Business Standard spoke to said they’d rather exit the company if they did not like management decisions. TCI has taken Coal India to court, alleging illegal interference of the government in the company’s functioning. TCI is a minority stakeholder, 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 at companies’ shareholder meets, fund houses abstained from voting during 2011-12. Meetings covered in the report include annual general meetings, postal ballots, court-convened meetings and extraordinary general meetings between April 2011 and March 2012.

The CEO of a fund house which abstained from all such resolutions during the year said, “It’s not mandatory for us to vote. What Sebi (the capital markets regulator) mandated was to disclose our voting policies. Voting or not voting is a call our investment committee takes.”

During the year, there were 4,716 meetings in which 23,482 resolutions were passed. Of these, 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. For the other 48 per cent, they preferred to abstain.

MF officials say during shareholders’ meetings, most resolutions get voted in favour because of their nature. “For instance, most are either appointment or re-appointment of directors or dividend declaration. Strategic decisions are rarely discussed in such meetings. That’s the reason which makes the percentage of ‘For’ voting higher,” says one.

There is another factor, too, which did not let fund houses participate. “Registering our presence or doing proxy voting in all resolutions add additional costs. This is why the industry prefers to abstain,” explains another CEO, of a mid-sized fund house.