1. Thump over Your Weight in Cos, SEBI Advises Insurers
India’s capital markets regulator, Sebi, is urging its counterpart in the insurance sector to
encourage insurers to become more vocal on issues of corporate governance. Insurance
companies hold significant stakes in listed Indian entities, with LIC, the largest, alone
managing assets worth over Rs.13 lakh crore.
“The Securities and Exchange Board of India has approached us to improve corporate
governance practice in companies and the need for insurance companies to play an active
role towards it. We are looking into the matter,” said a senior official of the Insurance
Regulatory and Development Authority (IRDA).
Sebi is pressing the insurance regulator to come up with norms on improving corporate
governance in listed companies, similar to the new rules governing the voting record for
mutual funds, said the IRDA official.
Asset management companies, which run mutual funds, now have to disclose the voting
record for their portfolio companies. Sebi has also asked fund houses to apply their
mind rather than abstain or blindly back the promoter of a company.
A Sebi official said institutional investors should act collectively and make reasoned
judgements as that would minimise any loss of shareholder value. He said institutional
investors investing in equities should become more active in exercising their ownership
rights without coercion. Sebi’s initiative comes in the backdrop of increased desire among
regulators that institutional investors should collaborate to ensure better corporate
governance in listed firms. In particular, these investors should ask the promoters more
questions, thereby becoming a voice for small investors.
“India is a country where promoters hold a big sway, and it is important for small investors
to have a voice. Institutional investors must lend their voice to small shareholders or act as

2. counter-voices to promoters,” Sebi Chairman UK Sinha said recently. Institutional Investors
Play Passive Role
Compared with developed nations, institutional investors often play a passive role in India.
In the West, investors are known to voice their opinion. They also stall major corporate
moves if the proposed action appears wrong. Besides, regulators such as the US
Securities & Exchange Commission mandate that institutional investors disclose their
voting record.
Shriram Subramanian, founder and MD of InGovern Research Services, India’s first proxy
advisory and corporate governance research firm, feels institutional investors have a
fiduciary responsibility to unit-holders to actively monitor their investments and demand
higher corporate governance standards in investee companies. In the process, the
institutional investors will also contribute to increasing the depth and breadth of local capital
markets.
The scenario, however, has started changing in India. In 2011, institutional shareholders
questioned Crompton Greaves’ decision to buy an aircraft when the company’s profits were
under pressure. And Satyam’s purchase of group firm Maytas Infrastructure had to be
aborted because of opposition from institutional shareholders, leading to the eventual
unraveling of the software services company. But such instances have been few and far
between.
Even though Sebi requires asset management companies to indulge in shareholder
activism, most fund houses have been shying away from voting on corporate resolutions on
behalf of large investors whose money they manage. In FY12, mutual funds abstained from
48% of proposals and the opposing votes were less than 1%.
“Corporate governance is not just about raising voice against event-based proposals, but
also about routine developments such as the appointment of a director or an auditor.

3. Institutional investors should have detailed voting policy guidelines,” Shriram added.
Insurance companies are large stakeholders in companies. For instance, they hold a big
block of shares in companies such as Larsen & Toubro and ICICI Bank. Interestingly, LIC’s
assets under management of over Rs 13 lakh crore far exceed other domestic institutions.
But the country’s largest life insurer is seen as a passive investor. In FY13, it had bought
stocks worth Rs 17,630.39 crore, including shares of staterun units in which the
government had partly divested its stake.
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