Indian Express Editorial Summary

Editorial Topic : Proxy Advisors in Corporate Governance

 GS-3  Mains Exam :  Economy

Revision Notes

Question :  Critically analyze the relationship between proxy advisors and corporate management in India and how they influence shareholder decisions. In the context of India, evaluate the extent of their influence on corporate resolutions with relevant examples.

Basic Concept


Governance refers to the system of rules, policies, and processes by which an organization is directed, controlled, and held accountable. It ensures the organization functions effectively, ethically, and transparently. Here are some key components:

  • Leadership: This involves setting the organization’s direction, vision, and values. Leaders establish a culture of ethics and compliance.
  • Transparency: Open communication and clear disclosure of information to stakeholders (investors, employees, public) build trust and confidence.
  • Accountability: Leaders and decision-makers are answerable for their actions and decisions. This often involves adhering to legal and ethical frameworks.
  • Fairness: Processes and decisions should be impartial and treat all stakeholders equitably.
  • Risk Management: Identifying, assessing, and mitigating potential risks to the organization’s success.
  • Compliance: Following relevant laws, regulations, and industry standards.


Corporate Governance

Corporate governance refers to the framework of rules and practices that ensure a company operates ethically, transparently, and accountably. It’s essentially the system that steers and directs the company.

Here’s why it’s significant:

  • Investor Confidence: Good governance builds trust and attracts investors by demonstrating sound decision-making and reduced risk.
  • Reduced Scandals: Strong governance helps prevent financial mismanagement and corruption, protecting the company’s reputation.
  • Sustainable Growth: Transparent and accountable practices promote long-term growth by focusing on stakeholder value, not just short-term profits.
  • Market Stability: Well-governed companies contribute to a healthy market by fostering fair competition and ethical business practices.

Effective corporate governance isn’t just about following rules, it’s about creating a culture of integrity and responsibility within the organization.

Back into Editorial Analysis

A recent article raised concerns about the power of proxy advisors (PAs) in corporate governance. While they may hold significant sway in some countries, the Indian context presents a different picture.

Understanding Proxy Advisors

Proxy advisors are independent research firms analyzing companies and issuing voting recommendations to investors on shareholder proposals. They gain attention when their recommendations:

  • Lead to rejected resolutions (e.g., Nestle’s royalty payout)
  • Diverge from some investor views (e.g., ITC Hotels demerger)

The Indian Landscape

In India, proxy advisors don’t dictate outcomes. Here’s a breakdown of the situation:

  • Stakeholder Empowerment Services (SES): A leading PA, SES recommended against 1,841 resolutions in 2023-24, but only 55 were rejected. This suggests Indian investors conduct their own analysis, using PAs for support.
  • Role and Perception: PAs act as a decision-making aid, highlighting potential problems like a doctor diagnosing an illness. However, challenges exist:
    • Legal Interpretations: Differences can arise between PA interpretations and company stances.
    • Benchmarking: PAs may view good governance as stricter adherence to compliance.
  • Limitations and Expectations: PAs shouldn’t:
    • Second-guess fair management decisions within governance parameters.
    • Lack the expertise, vision, and information of the board.

Companies, to avoid negative recommendations, should provide detailed justifications in board notices.

Valuation Concerns

PAs aren’t valuation experts, but they have a duty to flag unfair valuations. SES relies on independent valuations, considering market price as a fair estimate for listed entities.

Company Issues with Proxy Advisors

Companies like Tata Motors and ICICI Securities have faced criticism from PAs. However, these cases raise interesting points:

  • ICICI Securities Case: The argument centered on the valuation methodology used, based on the current lower price compared to the listing price. Additionally, the chosen route (National Company Law Tribunal scheme) raised questions despite SEBI’s approval.

Here’s a breakdown of the ICICI Securities case:

* Transparency: The NCLT scheme route was chosen transparently, but concerns lingered.

* Support: The proposal satisfied PAs and most institutional investors. Notably, the management opted for the NCLT route, a two-step process with greater scrutiny.

* Unreasonable Expectations: The law doesn’t guarantee someone’s expectations are always met. PAs can’t dictate outcomes either. Legally available routes, as long as they’re not for personal gain, are permissible. In ICICI’s case, no individual benefited unfairly.

  • Tata Motors Case: This case involved claims that Tata Motors DVR shareholders were treated unfairly. The argument was for a 1:1 exchange ratio for equity shares, disregarding the prevailing market price difference for a decade. A new concept of “economic valuation” was invented to allege Tata Sons was increasing their value at the cost of other shareholders, even though Tata Sons’ equity was actually decreasing.


The proxy advisor industry in India has matured significantly. The key challenge now is to maintain independence, avoid conflicts of interest, and focus on providing objective analysis, not desired outcomes. After all, proxy advisors are not beneficiaries of the final decisions.

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