Mutual funds may soon face some tough questions from market regulator Sebi regarding the exercise of their vote on key business proposals of the companies in whose shares they have put in investors’ money. The market watchdog is irked by the casual approach adopted by most of the funds when it comes to voting on proposals put forth by the company management for shareholder approval, as also the disclosure of these votes, a senior official told PTI.
The current dispensation at Sebi, with Chairman U K Sinha coming from a mutual fund background, is looking at measures like distributor incentives and making MFs a preferred stock market route for retail investors.
At the same time, the regulator wants funds to adopt the role of conscience-keeper for listed firms by actively raising their voice on the listed companies’ corporate governance practices, the official added.
Mutual funds collect money from investors and put the capital in shares of various listed companies and thus become their major institutional shareholders.
This gives them significant voting power in key decisions of listed firms, but they have so far mostly acted as yes-men or indifferent when proposals are put to vote by the companies.
This passive stance of fund houses, including by leaders like ICICI Prudential and Reliance MF, has come to fore after Sebi pushed them to make public their votes as shareholders.
Unsatisfied by the disclosures, Sebi is considering changes in its rules and might ask the funds to be more specific, including about reasons behind their votes.
Some funds are now considering outsourcing their voting job to specialist entities.
However, Sebi might wait for its proposed policy on outsourcing by market entities to come into place before taking any decision on any such proposal from the fund houses.
On their part, some MFs assert that they take utmost care in deciding on votes and they invest only in those companies where they have faith in the management’s decisions.
While large fund houses like Reliance MF and ICICI Pru did not reply to queries on their voting, Quatum MF said it decides carefully on each vote.
“At Quantum, we understand the responsibility of Proxy Voting. It is only after careful consideration of each proposal that we decide to vote for it or against it, or abstain from casting our vote,” Quantum AMC Director I V Subramaniam said in an emailed statement.
“This year it could be a case where most resolutions deserved a ‘Yes’ than a ‘No’. Additionally, in the case of Quantum, we invest in good businesses with good managements. This itself allows us to avoid companies that have too many contentious issues to be voted on,” he added.
However, most of the fund houses have either favoured the proposals or have decided to abstain from voting and instances of voting against a proposal is abysmally low.
The voting pattern is also in sharp contrast to Sebi’s aim to push the mutual funds to act as conscience-keeper of listed firms by actively voicing their support or opposition to various business decisions of the companies.
Sebi made it mandatory last year for fund houses to make public their ‘voting policy’ and also their votes, but it took another reminder by the regulator last month for them to declare their voting details.
Subsequently, the funds have disclosed their votes for the fiscal year 2010-11, but Sebi is unsatisfied with details provided by some of them. In some cases, funds have disclosed their votes without even naming the company, while there are also instances of all votes not being disclosed.
Quantum’s Subramaniam said: “If there are some serious corporate governance issues, then we have preferred to exit the investments rather than voting against the issue.”
He gave the example of Ranbaxy, where it exited the stock when the founders sold their shares to a foreign partner without giving a similar chance to minority shareholders.
“Similarly, in other cases, we have written letters to management seeking an explanation for certain actions. It is our earnest intent and actual practice to play an active role on behalf of our investors in the decisions taken by the companies we invest in,” he said.
Subramanian said that voting at general body meetings was one way to express our opinion, though not the only one.
Senior executives at some other fund houses, however, admitted that the mutual funds in India were yet to act as ‘activist’ shareholders, as has been the case in developed markets of the US and Europe.
It was in the backdrop of Satyam scam, which came to light partly due to dissenting voices raised by some MF shareholders against the management at that time, that Sebi had decided to promote the activist role of fund houses.
The market watchdog is of the view that the fear of a possible opposition by institutional investors like mutual funds being made public would force the companies to follow the best corporate governance practices in their businesses.
