Marginal rise in 'against' votes by mutual funds on resolutions in FY20

Over 67,000 corporate resolutions were put before fund houses during the year

Domestic mutual funds (MFs) voted ‘against’ 2,500 resolutions proposed by India Inc across annual general meetings (AGMs), extraordinary general meetings (EGMs), and postal ballots in 2019-20 (FY20).

This took the share of ‘against’ votes to 3.84 per cent, marginally better than the previous financial year’s share of 3.76 per cent, showed the data sourced from 

nseinfobase.com.

In FY20, MFs cast their votes on over 67,000 such proposals. Of these, 85 per cent were in favour. ‘For’ votes increased by 133 basis points in FY20. Experts say the share of ‘against’ votes by MFs is unlikely to see a sharp jump in the near term.

“In India, the bulk of equity is still held by promoters. While we have seen some instances of MFs coming together as a group and blocking corporate decisions in the past, fund houses are not configured to turn activist-investors,” said Dhirendra Kumar, chief executive officer of MF tracker Value Research.

“MFs tend to sell shares if they are not comfortable with the corporate decisions being taken. However, nudging by the markets regulator has led to some amount of improved participation,” he added.

 

 

Industry experts add that in several cases ‘abstain’ vote is like a tacit approval that MFs give to proposals, while at the same time managing to avoid on-record admission that they are backing the proposed resolution.

While the share of ‘abstain’ votes has declined from record peak of 12.5 per cent in the previous year to 10.98 per cent in FY20, it is still the second-highest tally for the last four years.

In several cases, MFs tend to abstain from voting, citing the investment being held is in a passively managed fund or an arbitrage scheme, where equity position is only taken to set it off derivatives market position.

However, the Securities and Exchange Board of India (Sebi) has directed MFs to play a more active role, regardless of the nature of their investments. 

Experts say MFs need to frame a principle-based voting policy and vote accordingly.

“A detailed policy laying down the specific scenarios on how the fund house is likely to vote is important. For instance, MFs’ voting should not be influenced by the names of directors or nominees,” said Shriram Subramanian, founder and managing 

director of InGovern, a proxy advisory firm. “If they are principally against more than a 10-year tenure for an independent director, they should simply vote against such a proposal,” he added.  

In December last year, Sebi laid down the Stewardship Code, where it said even if the quantum of holding is low or it is managed passively, MFs should consider intervening if the resolution is not in favour of minority shareholders.

The Stewardship Code says the reasons for intervention could also include environmental factors.

The others could be social and governance risks, leadership issues, financial performance of the company, corporate governance-related practices, remuneration, strategy, litigation, etc.

While the Stewardship Code was supposed to come into force on April 1, Sebi has extended the date for implementing it to July 1 in the aftermath of the Covid-19 pandemic.