Proxy Advisory firms are research based entities playing a significant role in shareholder Activism and Corporate Governance. They provide research based recommendation to institutional investors and shareholders on various issues that require shareholders’ approval. This paper analyses the journey of Indian Advisory firms and challenges faced by them using case study method. The paper also examine the role played by the proxy advisory firms and its impact on corporate governance. SEBI the market regulator played an important role in maintaining the quality of job of research Analysts by covering proxy Advisory firms under SEBI (Research Analyst) Regulations, 2014.


Proxy advisory firms are independent, companies that provide research and voting recommendations to their client. There recommendations include  the corporate governance related matter like the election of the board of directors, approval of equity-based compensation programs, advisory approval of management compensation, acceptance of deposits and other management- and shareholder-sponsored initiatives regarding board structure, compensation design, and other governance policies and procedures  which are brought before investor at shareholder meetings.

Shareholder activism in India is still in a nascent stage, many institutional investors even across the globe are voting based on the recommendations of proxy advisory firms. The decisions on whether to vote for or against various resolutions by shareholders at the annual general meetings is increasingly being driven by what the proxy advisor recommends. Also, voting is largely done by the custodians on behalf of the institutional investors, based on recommendations of the proxy advisors.

India has home-grown proxy advisory firms such as Institutional Investor Advisory Services (IiAS), In Govern and Stakeholder Empowerment Services (SES) that provide these services. Today shareholder is very much active in the governance related decision of the company and they cast their vote in a wise manner. For this they need to be well informed about the policies and performance of the company. Institutional investors who are the shareholders of various companies cannot keep the track of the policies and performance of all companies. This has created the demand of proxy advisory firm’s services.


Initially when the companies were incorporated, the best possible way to have a unanimous decision was voting and for this purpose the physical presence of all the members was necessary.  This is not a practical situation to have every member in the meeting every time because people buy shares through the share market and do not have any personal access to the firm. Moreover, because of the global market, even foreigners invest in the companies, and thus it is not feasible for everyone to cast their votes physically and it is a cumbersome and expensive process even for the firms to follow. These reasons lead to the evolution of the concept of ‘proxy’ in which one person was appointed to represent the other and the proxy has the power to vote on the behalf of the shareholder if the shareholder authorized the proxy for the same and this emerged as a more convenient way of voting.

This mechanism of voting evolved according to the needs of society and the proxy advisory firms came into the picture that acted as third-party consultants and provided expert advice and recommendations on whether to vote ‘for’ or ‘against’ the motion decided in the company. Basically, these firms are products of shareholders’ activism that have boomed because of unscrupulous corporate governance in the organizations. Their main aim is to provide counselling to the shareholders but they can also be given the right to vote if they are expressly authorized by the stockholders.  

The proxy advisory industry has grown over the past thirty years as a result of various market and regulatory developments. In 1988, the U.S. Department of Labour took the position that the voting of proxies of shares of stock owned by a pension plan was part of the plan’s fiduciary duty to manage employee benefit plan assets. This development prompted managers of employee retirement plan assets to seek help from the proxy advisory industry to satisfy their fiduciary responsibilities to vote proxies in the best interests of their clients.

In 2009, when the Satyam scam took place, the entire financial market shivered. The Indian Proxy Advisory Industry was born when the market regulator SEBI came out with a regulation Securities and Exchange Board Of India (Mutual Funds) (Amendment) Regulations, 2010 in July 2010  on “mutual funds” shareholding resolution voting policy. This regulation demanded more transparency in the voting and disclosure of the norms followed to determine the voting right of the shareholders. This regulation by SEBI and as already there was a rise in shareholder’s activism and indulgence, investment climate was becoming more common day by day, leading to the beginning of the proxy advisory industries in India Quickly, three proxy advisory firms came to the market with differing ownership structure.

The first proxy advisory firm to come up in India was ‘InGovern Research Services’ started by Mr. Shriram Subramanian. Since then several other firms like the Institutional Investors Advisory Services (IiAS), Stakeholders Empowerment Services (SES), etc have been incepted and enormous growth of these firms has been recorded.

The pattern of emergence of proxy advisory Industry is repeated in India also with arrival of three proxy advisory firms. However the growth of proxy advisory Industry in India may not be similar to that of USA as ownership pattern of listed entities in India are different from that of USA (S. Subramanian, 2016).


The proxy advisory firms are defined under regulation 2(i) (p) of the SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014 which were issued by the Securities and Exchange Board of India.

Proxy adviser” means any person who provide advice, through any means, to institutional investor or shareholder of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items;

SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014 talk about the eligibility norms, Capital adequacy registrations, and management of conflict of interest and disclosure requirements and other aspects. Regulation 23 deals with the specific disclosures to be made by the proxy advisory firms.

The following is a timeline of recent actions taken by the SEBI related to the proxy voting system and the role of proxy advisory firms:

> SEBI (Research Analysts) Regulations 2014[1] (the ‘RA Regulations’) were the first laws that explicitly brought proxy advisers under the legal radar. Although the regulations were elementary, they mandated:

    • registration with SEBI to undertake the proxy advisory business in India;
    • disclosures in the recommendations made by proxy advisers;
    • formation of internal policies and procedures for functioning; and
    • Maintenance of records of the recommendations made.

> In November 2018, SEBI formed a working group to provide inputs and insights into the ‘issues related to proxy advisers’. The working group was required to review the provisions of the RA Regulations and functional areas of proxy advisers, including rights and obligations. The working group was also expected to reflect on other matters pertaining to proxy advisers.

> In May 2019, the working group issued its 39 page report, addressing various aspects of proxy advisory firms, which were categorised in buckets of: ‘conflict of interest, governance and disclosures’; ‘infrastructure and skills requirement’; ‘voting, fiduciary duty and information sharing’; ‘interaction with corporates’; ‘setting basic industry standards’; ‘cost and competition’; and ‘additional points’.

> SEBI, by way of Procedural Guidelines for Proxy Advisors issued on 3 August 2020 (the ‘Procedural Guidelines’) and the Grievance Resolution between listed entities and proxy advisors, issued on 4 August 2020 (the ‘Grievance Resolution Circular’) (collectively, the ‘SEBI Circulars’), which introduced a new regime for proxy advisers in India.


There is not much empirical studies done to examine the extent to which Proxy advisory firm’s recommendations influence corporate decisions. But studies and evidence suggest that proxy advisors have significant influence over corporate choices, particularly compensation choices.

These firms have advised in the issues of merger, acquisitions and corporate restricting where there is likelihood of fading of the shareholdings of the investors.

Another positive role of these firms is that they enhance the habit of compliance with laws and corporate governance norms by giving their suggestion and themselves comply with the laws. By criticizing the structure and function of a company these firm spread the culture of following good governance practices making it a worldwide standard. As when they criticize a company for non-compliance or for any other corporate related aspects, it spread the world to general public and in entire capital market, which help others to learn from the mistake of the other. They basically monitor the companies to comply with corporate governance standards.

Proxy advisors have emerged as useful information intermediaries that facilitate shareholders to exercise their voting rights. Their effectiveness in facilitating shareholder dissent is conditioned by firms’ ownership composition as well as the prevailing corporate governance system in a given country. Although proxy advisors are therefore useful aids facilitating shareholder dissent, their effectiveness varies with context. (Steve Sauerwald et al., 2018)

Unlike the individual institution which may only control a small block of shares, proxy advisors aggregate a large block of votes which follow their recommendations (34% on average for their sample). Also this outsourcing of voting responsibilities can be an efficient means of sharing the costs of research across investors. The boards of directors change executive compensation plans in order to avoid a negative SOP recommendation by proxy advisory firms, and thereby increase the likelihood that the firm will not fail the vote (or will garner a sufficient level of positive votes). The stock market reaction to these compensation program changes is statistically negative. (Larcker, D.F, McCall, A.L. and Ormazabal, G, 2014)  (Alexander, C. R. et al., 2009) in their studies found that recommendations do appear to be a source of new, market-relevant information. It is evident positive abnormal stock returns at the arrival of pro-dissident recommendations, and nonparametric tests reveal that public news of recommendations is accompanied by elevated abnormal stock return volatility. Second, vote recommendations are good statistical predictors of contest outcomes even after controlling for a variety of other predictors such as voting rules, dissident and management ownership, and contest characteristics. Third, proxy advice seems to play a certification role. The results from their empirical tests suggest that investors do revise their valuation assessments of dissidents in response to vote recommendations.

Proxy Advisory Industry- Changing Face of Shareholder & Corporate Governance


> There are concerns regarding the policies followed by the proxy advisory firms while conducting their research and issuing recommendations. An excessive level of standardisation by the advisory firm in the approach is counterproductive. InGovern, the first proxy firm of India was appointed by three companies to suggest on the voting decision where the appointment of Independent Director was to take place in the Annual General Meeting. The proxy firm suggested voting against Wipro’s BC Prabhakar as the Independent director, against Shardul Shroff as Independent director of IDFC and against SH Khan as the Independent Director. The firm’s opinion on the matter was that the candidates who were contesting for the position of Independent directors were in a long association with the company and it was almost like a marriage with the company and the appointment of the same persons would violate or would be a non-compliance of SEBI (LODR).

> On the contrary Companies Act 2013 and SEBI (LODR) say an Independent Directors can serve for not more than two terms of five years each on the Board of the Company subject to the maximum tenure of ten years.

> Another issue related to proxy advisory is the related party transaction. The law on related party transactions requires a ‘majority of the minority’ voting in approving material transactions wherein the promoters are deprived of voting rights on that decision. Under the new laws, minority shareholders have become extremely powerful, following the introduction of legal provisions, which took away the rights of controlling shareholders to influence RPTs. The situation becomes worse when the majority shareholding is in the hand of foreign portfolio investors. A group of shareholders, accounting for 3.77% of the company’s equity, voted to embarrass the $104 billion Tata Group by making sure the related-party proposals worth ₹1,170 crore were rejected.

> Global proxy advisor are threat to companies in India. The institutional investors who are guided by an active band of global proxy advisors with the potential to destabilise management. Housing Development Finance Corporation Ltd. Chairman Deepak Parekh narrowly retained his position as a non-executive director as two U.S. proxy advisory firms ISS and Glass Lewis recommended that institutional investors vote against the resolution for extension of his appointment beyond October 2019. While ISS’ concern was that he was on more than six public company boards and hence a busy director prone to “over-boarding”, Glass Lewis felt that HDFC’s board is not independent enough. There is a conflict of the policies of these firm and SEBI Regulation on the number of directorship of an independent director which says they can serve in not more than seven listed entities.

> Indian advisory firms are subject to registration with the Securities and Exchange Board of India under its regulations issued in 2014 to Proxy Advisory Firms, the U.S. ones are not. In the above episode reveals the enhanced role of the U.S. proxy advisory firms in influencing corporate decision-making in Indian companies.

> Unawareness among the shareholders about the good corporate governance and the services provided by the proxy advisor is also one of the challenges faced by proxy Industry in India. The professional bodies like Institute of Chartered Accountants of India (ICAI – national professional accounting body of India) & Institute of Company Secretaries of India (ICSI – national professional association of company secretaries of India) and market regulator SEBI are creating awareness through conferences and training programs on the issue of shareholder activism.

> Proxy Advisory companies give their recommendation that is based on research and protecting proxy firms from frivolous litigation is another issue associated with their services. ITC had slapped a Rs 1,000-crore defamation suit against proxy firm Institutional Investors Advisory Services (IIAS), for allegedly making defamatory comments against one of its directors in a note to investors. IIAS had questioned ITC’s remuneration proposal for its non-executive chairperson Yogesh Deveshwar.


Proxy Advisory Industry in India is just five years old and not much research has been done in this field. There are only three players in the market. Proxy advisers are carrying out the role of reducing informational disparity in the markets by making recommendations to shareholders as to the manner in which they may exercise their rights. We cannot deny the role played by them as their advice is based on their research on corporate governance decisions. SEBI has formed panel to review rules for proxy advisory firms. It is recommended that the policies adopted by the firm should be aligning with SEBI regulation and the requirement of companies Act-12013. Proxy advisory firms are not only expected to highlight facts, they are also expected to give opinion on several matters. There should be enough safeguards in the law to protect the proxies from being dragged to court. If the proxy advisory firms work in the management best practice with compliance of law all the stakeholders will be benefited with their services and a good corporate governance objective will be achieved. 


1. Larcker, D.F, McCall, A.L. and Ormazabal, G,(2014) “Outsourcing Shareholder Voting to Proxy Advisory Firms”

2. Alexander, C. R., Chen, M. A., Seppi, D. J., & Spatt, C. S. (2009). The role of advisory services in proxy voting (No. w15143). National Bureau of Economic Research.

3. Subramanian (2016),” Proxy Advisory Industry in India”, Corporate Ownership & Control / Volume 13, Issue 2, winter 2016, Conference Issue

4. Sauerwald et al.(2018), “ Proxy Advisors and Shareholder Dissent”, Journal of Management Vol. 44 No. 8, November 2018 3364–3394

5. Umakanth Varottil (2018),”The Changing Face Of Shareholders: Outsourced Governance”,

6. Nadya Malenko (2018)”Proxy Advisory Firms: The Economics of Selling Information to Voters” Finance Research Seminar Supported By Unigestion.

7. Securities and Exchange Board of India (Research Analysts) Regulations, 2014

8. David F. Larcker, Allan L. McCall, and Brian Tayan (2013),”And Then A Miracle Happens, How Do Proxy Advisory Firms Develop Their Voting Recommendations?”, Stanford Closer Look Series.

9. Umakanth Varottil (2013),”SEBI’s Consultative Paper on Review of Corporate Governance Norms in India: Comments and Suggestions”

10. Umakanth Varottil (2012),”|The Advent of Shareholder Activism in India”, Journal on Governance, Vol. 1 No. 6.

11. Tamara C. Belinfanti (2009), “The Proxy Advisory & Corporate Governance Industry: The Case for Increased Oversight and Control”, New York Law School.


1. https://economictimes.indiatimes.com/articleshow/65418949.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

2. https://blog.ipleaders.in/proxy-advisory-firms/.

3. https://blog.ipleaders.in/what-are-proxy-advisory-firms-and-their-role-in-indian-corporate-governance/

4. https://www.ibanet.org/article/288eaa21-69da-4807-afb7-6e43071761fa

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