India's market regulator on Monday proposed tighter disclosure rules for shareholder advisory firms known as proxy advisors to avoid conflicts of interest.
Although limited in their presence in India, proxy advisors, which provide research to institutional investors, are a fixture in western markets.
The Securities and Exchange Board of India (SEBI) has flagged concerns that they may be subject to conflicts if they are providing companies with consultancy services at the same time as advising their shareholders.
Calling for 'Chinese Walls', or communications barriers, between these firms and their consultancy businesses, a SEBI-appointed working group said enhanced disclosures were necessary, including on relationships with financial institutions.
Conflicts may also arise if listed companies hold shares in proxy advisors, they said.
In their report, on which they have invited public comments, SEBI outlined the need for companies to be transparent in their communications.
"Privileged information being shared only with proxy advisors will detract from improving corporate communication generally, and provide undue power to the proxy advisors," it said.
Firms like Institutional Shareholder Services and Glass Lewis hold significant sway over how institutional investors outside India vote on resolutions at shareholder meetings.
Domestic proxy advisors in India are already registered and regulated by SEBI, but the report said the regulator may also consider providing a code of conduct for foreign proxy advisors.
The move in India comes at a time when SEBI has been looking to tighten regulations governing credit rating agencies and auditors.