Most mutual fund managers have largely voted in favour or abstained from voting in the resolutions of their investee companies. An analysis done by Value Research (VR) shows that most fund houses have voted either in favour of proposals (83%) or abstained (12%) from voting in the proposals of their investee companies in FY15-16.
VR analyzed the voting patterns of 30 fund houses and found that out of the 43,413 resolutions, fund houses voted in favour of 36,000 proposals and voted against in 1,809 proposals. They abstained from voting in 5,435 proposals.
Fund officials say that they abstain from voting if they are managing passive funds or have a very small exposure to the company. However, globally even passive funds are quite active in demonstrating their clout in their investee companies, especially in US where passive funds are known to yield significant power when it companies to having a say in company resolutions. US based investment management firm Vanguard has often voted against the re-election of directors in its investee companies.
SEBI has been nudging fund houses to play an active role in exercising their voting rights in the interest of minority shareholders. In 2014, the regulator had asked AMCs to disclose the rationale behind their voting pattern on their websites.
The trend is changing. Fund officials say that MFs are slowly beginning to play an active role in having a say in company proposals. For instance, top fund houses had opposed giving permission to Suzuki to set up a car plant in Gujarat.
“We engage with companies when we think that there is a significant deviation in the corporate governance. Also, we are more active in voting in mid cap funds which have grown significantly. We are more concerned with matters which affect the profitability and future growth of the company. On the day-to-day activities like dividend announcement and appointment of directors, we generally vote in favour of such proposals,” says Tahir Badshah, Fund Manager, Motilal Oswal AMC.
The process
Generally, analysts and fund managers recommend their voting decision to their top management for approval. AMCs can also appoint a third party to vote on its behalf, which entails costs. Some custodians offer proxy voting facility to FIIs for a high fee. Thus, few fund houses have outsourced this task to knowledge process outsourcing companies.
