"Not taking a decision is also a decision," former Indian Prime Minister Narasimha Rao famously remarked. This profound philosophy has many takers. Rather than sticking their necks out, folks often prefer to sit on the sidelines.
Until not so long ago, this cohort included many mutual fund houses—key stakeholders in India's equity market, with fiduciary responsibilities towards their millions of investors. Despite this, they frequently abstained from voting on resolutions of companies they had invested in, even when these resolutions were detrimental to minority shareholders. The reasons were myriad—laziness, conflicts of interest, plausible deniability, take your pick.
This party was crashed last March when SEBI finally cracked the whip. The market regulator changed the rules of the game, telling mutual funds to compulsorily vote on most key corporate resolutions from April 2021 onwards. This mandate extends to all resolutions from April 2022. Farewell, escape hatch.
The results are telling. Just 2% of the votes cast by mutual funds in April-September 2021 were abstentions; the number was 12% in the year-ago period. Also, 5% of those votes were 'against' resolutions, a seven-year high. At the receiving end were known names such as Eicher Motors' Siddhartha Lal and IDFC's Vinod Rai.
"SEBI has done a brilliant job by forcing us to vote," says a one of the mutual fund manager.
Now, well-begun may be half done. But there's still a long way to go. For one, the pulls and pressures could be many. Fund houses are not free of conflicts of interest while weighing resolutions, in today's insightful newsletter story. It's never easy to bite the hand that funds you. www.multimediastudio.net