Silence is a virtue for MFs

Like the average Indian citizen, mutual funds have a view on everything but do not take the effort to make it count by voting. The abysmal voting record of Rs 7 lakh crore Indian mutual fund industry has come to the fore in an analysis by Institutional Investors Advisory Services (IIAS).

An analysis of voting pattern of the 41 asset management companies (AMCs) whose voting patterns were reviewed, 11 have either completely abstained or not voted on any shareholder resolution in FY11. Of the remaining 30 AMCs, several voted only on a sub-set of resolutions put forth to shareholders for approval.

Of around 3,600 annual/ extra-ordinary general meetings (AGM/EGM)/ Postal ballots/ Court convened meetings voted by the mutual fund houses, over 61 per cent of the time fund houses abstained votes, 38 per cent of the time they voted ‘for’ the proposals put up, and the remainder (less than one per cent of the votes cast) were ‘against’ the proposals put forth for shareholder approvals.

UTI Asset Management, HDFC Asset Management and Morgan Stanley are the only fund houses to have voted against in the AGM. In EGM and postal ballots, foreign fund houses Fidelity and Franklin Templeton were active with eight votes each against key resolutions.

“A welcome beginning has been made,” said Amit Tandon, managing director, IIAS. “While funds have begun to vote, they now need to add more muscle to their voting.” he added.

IIAS found fund houses had voted for or abstained from voting even in a number of shareholder-unfriendly resolutions. For example, most fund houses abstained or voted for in the resolution on the proposed sale of Piramal Healthcare’s domestic formulations business to Abbot.

According to IIAS, “The slump sale instead of a demerger, restricted the cash pile to Piramal while increasing tax burden.” Similarly, fund houses did not demonstrate their concerns through votes in remuneration of promoters of Sun TV, issue of warrants to a promoter entity of Apollo Hospitals and reappointment of auditors in Hindalco, the agency said.

The AMCs cite a number of reasons for voting with the management. Many are of the opinion that they do not have the required percentage of votes to have a resolution against the management to be passed. Some are also of the opinion that this might limit their access to the corporate’s management and other legitimate requests for information required for investment analysis, thereby adversely affecting their business relationships with corporates.

“We are not arguing that investors become activist. But, it is important for investors to clearly spell out where they stand on issues, be it executive compensation, dilution, unbridled borrowings, mergers with unlisted companies, and a host of issues where the interests of institutional investors diverges from that of ‘promoter shareholders’,” the IIAS report said.

According to the agency, the most effective way of conveying this is not a one-on-one conversation but a shareholder meeting. “After all, the investors owe it to themselves that their voice be heard. But the investors also have a fiduciary responsibility, which will be fulfilled only if their vote is counted,” it said.

Source: http://www.business-standard.com/india/news/silence-isvirtue-for-mfs/462236/