India’s InGovern Research Services Pvt. Ltd. “assists financial institutions and investors that have financial, investment or reputational exposure to public-listed companies in India by providing our clients with corporate governance reports, proxy analysis and proxy voting solutions.” Their 2011 – 12 report, Analysis of Mutual Funds Voting for 2011-12, finds little progress when it comes to mutual funds participating in corporate governance and taking their fiduciary responsibilities regarding proxy voting seriously.
Like US funds, Indian asset management funds are now required to report their proxy voting policies and votes. InGovern examined the announced votes of reporting funds (39 out of 44) and arrived at the following conclusions:
- There is only a marginal increase in for/against votes from last year.
- Many funds fail to even attend meetings and have abstained as a policy.
- Even among funds that voted, there is little alignment between the votes and the voting policy.
- Some fund houses are getting the Vote Reporting itself incorrect and need to be educated on what is the correct way of reporting.
- There is no way to verify that the Votes reported by the fund houses are correct.
In the US we saw mutual funds back off taking tough stands, moving to increased use of abstentions. From a now somewhat dated report by Jackie Cook at FundVotes.com:
Opposition to CSR resolutions by mainstream fund groups (votes cast ‘against’ CSR shareholder resolutions) has fallen by a full 13 percent over the five year period, from 85 percent in 2004 to 72 percent in 2008. This corresponds with a large and sustained increase in abstentions by mainstream funds on CSR resolutions over the five year period from 10 percent in 2004 to 16 percent in 2008.
Indian funds seem to have begun with that easier strategy, voting abstain almost as frequently as they voted in support of resolutions — voting against only 326 times out of 23,482 votes. According to Shriram Subramanian, Founder and Managing Director of InGovern, most Indian funds don’t report their votes on management and shareowner proposals separately, even though they are required to do so by the regulator, SEBI. However, since there are only a handful of shareowner proposals, separate reporting doesn’t seem to mean much at this point. Hopefully, going forward, that will change.
My takeaway from InGovern’s report is that most Indian funds don’t appear to put much thought or effort into voting. Tata Mutual fund, for example, abstained from every vote. A few funds, such as Franklin Templeton Mutual Fund appear to take voting more seriously, abstaining only 23 times out of 2,050 votes. InGovern grades each reporting fund on three factors, only JPMorgan Mutual Fund gets a positive check for all three factors.
After their analysis, InGovern made the following recommendations
- SEBI should mandate that fund houses adopt the global practice of quarterly vote reporting and fund-wise vote reporting. Some fund houses in India are already adopting these practices.
- SEBI should push fund houses to adopt detailed voting policies.
- Vote reporting by fund houses should be subject to audit.
InGovern and FundVotes are to be congratulated for their work in this area… both deserving of gold medals. However, key to improvement, both in the US and India, is for fund participants to make use of this data. Until the press publicizes this information and investors voice their displeasure with do-nothing funds, real change is unlikely.
Too many funds are short-term holders and view monitoring and voting activities as costly side-shows. Why lift a finger when you can free-ride on the work of others? Unfortunately, too few are toiling in the trenches. When the work doesn’t get done, we all suffer. Investors should scrutinize fund voting records and should avoid the slackers.
To contact James McRitchie directly, please email jm@corpgov.net
