In its fifth meeting of the International Advisory Board of SEBI, the advisory board recommended that SEBI should introduce a code for fund houses (on the lines of Stewardship Code of UK) based on the approach of ‘comply or explain’.
Here are the principles of the ‘comply or explain’ code for mutual funds in UK:
- Publicly disclose their policy on how they will discharge their stewardship responsibilities.
- Have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
- Monitor their investee companies.
- Establish clear guidelines on when and how they will escalate their stewardship activities.
- Be willing to act collectively with other investors where appropriate.
- Have a clear policy on voting and disclosure of voting activity.
- Report periodically on their stewardship and voting activities.
The recommendation was made by the International Advisory Board while reviewing the governance role played by institutional investors in investee companies.
SEBI observed that fund houses are taking an active role in exercising their voting rights in investee companies.
“Historically, asset managers have "voted with their feet" meaning they sold the stock if they didnt like what management was doing. But we have a strong belief that it is our fiduciary duty to engage with companies proactively. With growing size of domestic asset managers and regulatory interventions (norms for voting policy prescribed by SEBI, changes in the Companies Act and listing agreement empowering minority shareholders, e-voting etc.), asset managers are voicing their views more actively at shareholder meetings,” said Navneet Munot, Chief Investment Officer, SBI Mutual Fund in an interview with Cafemutual.
According to SEBI, participation of mutual funds in voting has increased from 48% in FY 2013 to 83% in FY2015 till Dec 2014.
SEBI had set up the International Advisory Board in 2011 to learn from global market trends. The board consists of seven members including SEBI chairman U K Sinha.
