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Behind the Vote: A Critical Analysis of Proxy Advisors in the Indian Market

The authors are Arjun Kapur and Akshat Joon, third-year students at Maharashtra National Law University, Mumbai.


Proxy advisors have become prominent entities in global corporate governance, exerting considerable influence over corporate policies and shareholder decisions. The proliferation of these organisations in India is especially remarkable, as it exemplifies a more extensive pattern of improved corporate governance and increased shareholder activism.

Proxy advisors serve as intermediaries between corporate boards and shareholders, offering recommendations on various matters, including environmental policies and executive compensation. Nevertheless, the growing influence of proxy advisors gives rise to significant concerns regarding their functioning, the credibility of their recommendations, and their overall effect on the ecosystem of corporate governance. Although they espouse the values of openness and responsibility, apprehensions surround their transparency, possible conflicts of interest, and the caliber of their suggestions.

In light of their substantial sway, it is imperative to critically examine their function, regulatory structure, and operational procedures in the Indian milieu. The Securities and Exchange Board of India (“SEBI”), which is predominantly tasked with overseeing the securities market in India, establishes the regulatory framework pertaining to proxy advisors in India.

In light of the increasing sway that proxy advisors have over corporate governance and shareholder voting, SEBI has established explicit protocols to guarantee that these organisations function with integrity, responsibility, and transparency. The purpose of these regulations is to safeguard the interests of investors and guarantee that proxy advisors make a constructive contribution to the corporate governance ecosystem in India. SEBI continuously assesses and modifies the regulatory environment about proxy advisors in India in light of the changing dynamics of the securities market and the corporate governance structure. Proxy advisors were initially regulated by the SEBI (Research Analysts) Regulations 2014.

Proxy advisors were obligated to register with SEBI, satisfy specific eligibility criteria, and adhere to prescribed codes of conduct to safeguard their research's integrity and prevent conflicts of interest. SEBI issued specific guidelines for proxy advisors in August 2020 to improve the quality of their recommendations and the transparency of their operations. By establishing a more transparent and organised environment for the operation of proxy advisors in India, these guidelines hope to improve their accountability and the caliber of their recommendations. Through this action, SEBI aims to guarantee that proxy advisors contribute constructively to corporate governance, thereby cultivating an environment that encourages shareholders to make well-informed decisions.

By examining their operations through the lens of Indian corporate governance, this blog seeks to analyse proxy advisors in India critically. Its objective is to comprehend the intricacies of their influence, the criticisms they encounter, and potential avenues for improvement to more effectively cater to the concerns of shareholders and the broader corporate ecosystem. Our objective is to make a scholarly contribution to the ongoing discourse regarding improving corporate governance standards in India by examining how this analysis can ensure that the role of proxy advisors is meaningful and in line with the interests of all stakeholders.

Influence of Proxy Advisors in Corporate Governance

Proxy advisors have emerged as crucial players in reshaping the governance landscape by advising shareholders on various corporate governance issues through research and voting recommendations. Institutional investors are especially susceptible to the sway of proxy advisors, as they depend on their impartial evaluations and suggestions to arrive at well-informed voting choices during shareholder assemblies.

The aforementioned dependence has granted proxy advisors the authority to function as gatekeepers of corporate governance, compelling organisations to embrace procedures that conform to international benchmarks of openness, responsibility, and stakeholder entitlements.Promoting best practices in corporate governance, such as executive compensation, board diversity, environmental sustainability, and social responsibility, is paramount. Proxy advisors influence the regulatory environment and their institutional clients by promoting these practices and contributing to the larger discourse on corporate governance reform in India.

Their suggestions frequently result in productive interactions between shareholders and company management, cultivating an environment of responsibility and discourse critical for organisations enduring viability. In addition, the impact of proxy advisors has prompted Indian corporations to place a greater emphasis on disclosure and compliance standards, as they are apprehensive about detrimental recommendations that may persuade shareholders to vote against management proposals.

As a result, corporations have been compelled to improve their governance frameworks, implement more open reporting protocols, and foster greater shareholder engagement indirectly. Nevertheless, the increasing sway of proxy advisors gives rise to apprehensions regarding their responsibility, the likelihood of encountering conflicts of interest, and the caliber of their suggestions. 

Challenges and Criticisms in the Indian Market

Like their international counterparts, proxy advisors in India encounter various obstacles and critiques that have incited discussions regarding their function, efficacy, and influence on corporate governance. Concerns regarding accuracy, transparency, potential conflicts of interest, and their impact on shareholder decisions and corporate practices give rise to these obstacles.

Concerns regarding the precision of proxy advisors' recommendations constitute one of the principal criticisms against them. According to critics, proxy advisors may not always comprehend the nuances of the issues or the company's specific context, which may result in recommendations not in the shareholder's or the company's best interest. This is especially relevant in intricate circumstances, such as mergers and acquisitions, where a standardised analysis might not comprehensively encompass the complexities. The possibility of conflicts of interest constitutes an additional noteworthy issue.  

In addition to institutional investors, proxy advisors may also be retained by the companies they provide reports on. The assumption of this dual position may result in conflicts of interest or the appearance of partiality, thereby eroding confidence in the impartiality of their suggestions. Regulatory frameworks attempt to alleviate these risks by imposing disclosure obligations; however, the efficacy of these interventions is occasionally called into question.

Additionally, some criticise the "one-size-fits-all" approach frequently utilised by proxy advisors in their recommendations. Applying corporate governance standards and practices can differ substantially between geographies and industries. Nevertheless, proxy advisors might impose standardised criteria and benchmarks that fail to consider these discrepancies, resulting in suggestions that might not entirely apply to each organisation or circumstance. Although they serve a vital function in educating investors, particularly those who manage diverse portfolios, apprehensions arise regarding an excessive dependence on their suggestions. This may result in proxy advisors' recommendations overshadowing the shareholders' nuanced discernment, potentially distorting voting outcomes in a manner that is not always consistent with the company's or its stakeholders' long-term interests. 

Proxy advisors are of utmost importance within the corporate governance framework in India; however, they encounter substantial obstacles and censures that emphasize the necessity for an impartial strategy. To effectively address these concerns, regulators, proxy advisors, companies, and investors must engage in an ongoing dialogue to ensure that proxy advisors' contributions to corporate governance are sustainable and beneficial. 

Conclusion and Policy Recommendations

The trajectory of proxy advisors in India is significantly influenced by the evolving corporate governance landscapes and growing emphasis on sustainable and responsible investment practices. In light of these entities' ongoing impact on corporate governance and shareholder decision-making, their function must evolve to accommodate the requirements of an increasingly dynamic, transparent, and inclusive marketplace. Numerous suggestions can be made to guarantee their ongoing pertinence and beneficial influence.

Firstly, improving the comprehensiveness of research is of utmost importance. Proxy advisors must invest in more advanced analytical methodologies and tools to comprehensively comprehend each company's governance challenges and specific context. This entails conducting sector-specific analyses, considering both local and global governance standards, and transitioning towards providing more tailored recommendations that account for the varied requirements of institutional and retail investors.

Secondly, resolving potential conflicts of interest with stricter measures is essential. This may entail the implementation of more stringent disclosure regulations, segregating consulting and advisory services operationally, and establishing internal policies that emphasize the impartiality and autonomy of their recommendations.

Another crucial development area is enhancing engagement among proxy advisors, corporations, and shareholders. Proxy advisors can ensure that their recommendations are grounded in thoroughly comprehending the organisation's strategies, challenges, and governance practices by fostering a more collaborative environment. This may encompass consistent discourse, mechanisms for receiving feedback, and collaborative forums that convene all participants within the corporate governance ecosystem. 

Furthermore, by adopting technological innovations, surrogate advisors can enhance the timeliness, precision, and availability of their recommendations. Implementing technological advancements, including blockchain and artificial intelligence, can bolster analytical capacities and the integrity of the voting procedure, and streamline communication among all participating entities.

In conclusion, continuous education and awareness-building regarding the function and significance of proxy advisors can aid in reducing skepticism and bolstering confidence among both corporations and investors. This entails emphasizing the advantages while candidly acknowledging the difficulties and constraints encountered by surrogate advisors. The evolving status of India as a global investment destination will inevitably lead to a transformation in the function of proxy advisors. Proxy advisors can sustain their pivotal influence on the corporate governance agenda in India by effectively responding to contemporary criticisms, adopting technological advancements, and cultivating a more transparent and collaborative environment. Their future success and influence depends on their capacity to adjust and react to these opportunities and challenges.



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