Vocal proxy advisories will ensure better corporate governance

The narrative of corporate governance got a shot in the arm in 2009 when Ramalinga Raju, one of the poster boys of India's IT story, owned up to an Rs 8,000 crore accounting fraud at Satyam Computer Services, the Hyderabad-based company be headed. What has partly contributed to sustaining the attention on governance standards since then is the emergence of proxy advisories, which, among other things, advise investors on how to vote on company resolutions. Best-known among them are Mumbai-based Institutional Investor Advisory Services (IIAS) and Bangalore-based InGovern Research Services.
 
These days, it is quite common to see media reports about the two advisories and their peers objecting to company resolutions. For instance, InGovern, founded by former Infosys executive Shriram Subramanian, recently asked investors to vote against Pantaloon Retail India Ltd's plan to de-merge its fashion business, citing dilution of the voting rights of minority shareholders. IIAS, on the other hand, has objected to the proposed appointment of TVS Motor Co Chairman and Managing Director Venu Srinivasan's son Sudarshan Venu to the company's board. The advisory cited the 24-year-old's lack of experience as the reason for its recommendation.
 
Proxy advisories have been vocal about issues such as royalty payments by the Indian arms of multinational companies to their parents, compensation packages of senior executives, and mergers and acquisitions (intra-group M&As, where valuations and voting rights are in favour of the promoters/parent companies). .

They have not had much success so far, since promoters control a substantial portion of most Indian companies.

Critics believe proxy advisories have not had the desired impact even in markets such as the US. That is not reason enough to believe they are not of much use in India either. Most listed companies here are promoter-controlled, which often means minority investors' interests are compromised.

And that is where an outspoken proxy advisory can be useful.

Its objectives can be achieved not just through recommendations to institutional investors but also by taking those views to retail investors, thereby creating a climate for change.
 
Independent and forthright proxy advisories are essential to foster a professionally driven, rather than promoter-led management culture in India.