Demystifying Proxy Advisors: At the forefront of corporate Governance Advocacy

Recently, two proxy Advisory firms opposing Anant Ambani being a Non-executive Director at RIL.

Hello everyone, I know whoever read my first blog, would wonder if they’re just reading about old news. Well, Obviously NOT!!

I’m not here to share any old news that you would’ve scrolled and ignored months/years ago. I’m here to simplify the news and just give you the insights and explain technicalities that takes a toll of your time for understanding.

So enough with the disclaimer, let’s dig in !

It’s a very crucial decision to set up succession plan for a conglomerate like RIL (Reliance Industries Limited). With the aim of, transferring assets fairly and efficiently from older generation to younger generation; passing on the control of leadership; and especially preserving the business net worth and promoting harmony; MD and Chairman of RIL, Mukesh Ambani announced his succession plan about passing the torch to his three children Akash, Isha and Anant.

Now, this has been planned for a while now, Isha has been in charge of Reliance Retail Ltd, Akash is in charge of telecom business, i.e. Reliance Jio Infocom and Anant (youngest of all) oversees the new green energy business.

Now what’s the problem, Ambani apne bacho ko business nahin dega to kisko dega ?!

Now, on 27th October 2023, RIL shareholders overwhelmingly voted for the appointment of Ambani Children to the board. Akash and Isha got more than 98% votes. Even Anant got more than 92% votes. Well, they became the members of the board. BUT, two Proxy Advisors, Institutional Investor Advisory Services Ltd (IIAS), and International Proxy firm Institutional Shareholder Services (ISS) opposed the appointment of Anant Ambani being a non-executive director. The Shareholders ignored the PAs and still went on with the decision.

But, who are these Proxy Advisors ? aur kaun hai ye log kahan se aate hai ye log ?! Let’s find out.

Proxy Advisors are independent research institutions or entities that provides advisory services to corporations. They analyze important corporate issues like Mergers and Acquisitions, Leadership Decisions, CEO pays, Annual general meeting decisions, EGM decisions.

So, are they really that important ? Well, they can be to the institutional investors. See, Investors/Shareholders wouldn’t require them if they could just attend every AGM, EGM, and cast their votes on basis long-term financial reports. But the reality is not quite the case, investors do require PAs help as they provide sound recommendations regarding high-level corporate decisions. These PA’s Policies are often looked upon as Corporate governance’s best practices. Proxy Advisors are regulated by SEBI and are defined under Research Analyst Regulations, 2014.

Proxy Advisory firms take fees from institutional investors as a percentage of AUM (Assets under Management) or a flat fees to provide advisory services. Though, these PAs are often criticized for their conflict of interest as they are often hired by same corporation as management/ strategic consultants.

Some of the PA firms in India are IIAS, InGovern and Stakeholder Empowerment Services, etc.

Hope you liked it, See you next week with something new !!