The proxy-advisory firms have just made their entry into India. The primary purpose of the proxy-advisory services is to advise institutional investors and other major investors in companies to make recommendations for their actions on various company resolutions that are put forward to shareholders. Two such outfits are already operating with more expected to follow(“The Proxy Voice of Investors”, ET, November 29,20011.One of them, Institutional Investor Advisory Services India, is promoted by Anil Singhvi who was initially Director Finance/CFO at Ambuja Cements who went on to become MD later with Mr.Amit Tandon, former MD of Fitch Ratings India while the other ,InGovern Research Services, by Shriram Subramanian of Bangalore. It is a very welcome development.
It is not clear about their operational framework. What is it that they are going to advise on? Whether the companies are meeting the regulatory requirements or go a little more deep to probe and advise based on what good governance should be. Some of the issues already raised by them seem to be very promising : like raising questions on salary proposed to be paid to the promoter’s son at Sun Pharma, the tenures of Independent directors even in such companies like Infosys and Wipro which are supposed to be better governed than many others, the Hindalco auditor having been continuing for 50 years without change etc.
These are only a few things. I had myself written about a number of deficiencies in the governance practices of Indian companies including Tata companies, widely respected for their governance practices. A large number of companies treat corporate governance requirement just as a box-ticking exercise. Even those directors who speak for better governance practices find excuses(like the suggestion came into being in 2004 only) to continue even after completing 9 years(the maximum tenure suggested for independent directors).There are many other issues like cross directorships, independent directors in a company who are partners of the solicitors of the same company, auditor of one group company and independent director in another company of the same group, independent directors not attending any of the board or committee meetings but still the company making commission payment , one independent director who is a full-time chairman of one company but manages to be on the board of another 5 companies, independent directors holding substantial number of shares ( may be below 2%) and being on the audit committees, whole-time or non-executive, non-independent directors becoming independent directors consequent to demergers or reorganizations of companies etc etc. I had been closely observing and even writing about deficiencies in the way corporate governance is practiced and also the loopholes in the laws and regulations over the last 7 years or so and have not witnessed any major changes in the way CG is administered. Of course, all my research has been using secondary data and if I could find such deficiencies in the system only from secondary data, the real actions and practices on CG may be more deficient. Singhvi has put it very right: “Preaching good governance to Indian companies will not work”
The most famous of the proxy-advisories, the Institutional Shareholder Services(ISS) based in US is said to track about 28,000 companies worldwide with about 130 analysts on its rolls, while its closest rival Glass Lewis &Company follows about 8000 companies and has more than 70 analysts. ISS is promoted by the corporate governance expert, Robert A.G.Monks and also provides corporate governance ratings in addition to the proxy-advisory. While ISS is paid by the institutions they advise, there were allegations that they were also accepting fees from corporations for advising them on how to increase their ratings from ISS.(John C.Coffee Jr., Gatekeepers, OUP,2006).This is where the new proxy-advisors in India have to take care of: they are expected to be gatekeepers in a market-dominated scenario and they themselves should be well-governed.
No comments:
Post a Comment