Lack of clarity in
company law is a grey area; AMCs suggest AMFI to step in to clear the confusion
Mumbai: The interpretation of proxy
law is turning to be a stumbling block for mutual funds houses in exercising
their proxy voting rights.
As per the Companies Act 1956, a proxy
can only vote in a poll. In any general meeting of a company, a resolution is
put to vote by show of hands unless a poll is demanded. Thus, fund officials say that they cannot
vote on all resolutions.
“There has to be a uniform
interpretation across the industry. There is no clarity in company law. A proxy
cannot vote by show of hand. If one adopts a proxy, then you cannot vote in all
resolutions. Neither SEBI nor the company law has clarified it. This is a major
grey area. Electronic voting has not been adopted for all types of resolutions.
CDSL offers electronic voting but all companies have yet to adopt it,” said a
CEO of a mid-sized fund house.
Last year, SEBI
asked fund houses to disclose their policies relating to proxy voting in the
annual general meetings and extra ordinary general meetings of the investee
companies in their annual reports and websites. SEBI’s move was intended to
ensure that MFs play an active role in corporate governance of listed
companies.
“The fact that we are investing in a
company is because we have done extensive research about the company. If we are
comfortable with the management then we are comfortable with their resolution.
If you cannot vote, it’s better to sell off the stock. You can’t vote just for
the sake of voting,” said another fund official.
Fund
houses are of the view that AMFI should step in and resolve this issue.
The process of voting is tedious. In a
year, the compliance team has to screen through as many as 4000 to 5000
resolutions issued by companies. A majority of these are routine in nature
while special resolutions are very few and far between.
Earlier, small
fund houses which owned a few hundred shares of a company did not give much
importance to voting. They simply exited stocks which they thought were against
their fund’s policies, arguing that their votes would not have made a major
difference anyway.
Some officials
suggest that SEBI should get more stringent with institutional investors than
mutual funds. “Mutual Funds typically exited a stock if they didn’t agree with
a resolution. SEBI should make institutional investors more active in the
companies they invest in. This will have a beneficial effect on fund schemes
also,” said a CEO of a bank sponsored mutual fund.
SEBI had advised
AMCs to vote on matters like corporate governance, merger, corporate
restructuring, anti takeover provisions, changes in capital structure,
management compensation issues, social responsibility, appointment and removal
of directors, among others.
Generally, analysts and fund managers
recommend their voting decision to their top management for approval. To cast votes, a representative from a fund
house has to be physically present during the meeting. 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.
Almost all fund houses have put up
their proxy voting policies on their websites. Fund houses have their internal
policies on voting on various issues concerning the company. Generally, AMCs
abstain from voting if the resolutions are general in nature and do not
materially affect the interests of unit holders.
