Proxy Advisors

Proxy Advisors (Part 1)

Definition: Proxy advisors are independent research firms that provide advice to institutional investors and shareholders on exercising their rights in a company, including voting recommendations on agenda items.
Role: They evaluate corporate matters such as mergers, acquisitions, and CEO pay, and produce detailed reports advising shareholders on how to vote to safeguard their interests.
Regulation: Proxy advisors are regulated by SEBI under the Research Analyst Regulations, 2014, and are required to register with SEBI and comply with provisions related to internal policies, disclosures, and code of conduct.

Benefits of Proxy Advisors: They help institutional investors vote intelligently, provide research reports to global investors, and offer efficiencies of scale and non-duplication of effort.
Impact on Corporate Governance: Proxy advisors have a positive impact on corporate governance, promoting increased disclosures, transparency, and compliance with best practices.
Registered Proxy Advisors: Currently, there are four proxy advisors registered with SEBI: IiAS, SES, ISSIPL, and IRSP.

SEBI Regulations: Proxy advisors must comply with SEBI Research Analyst Regulations, 2014, including registration, internal policies, and disclosures.
Code of Conduct: Proxy advisors must abide by the Code of Conduct prescribed under the Third Schedule of SEBI Research Regulations, 2014.
Disclosure Requirements: Proxy advisors must disclose their voting recommendation policies, methodologies, and processes, as well as any conflicts of interest.

Conflict of Interest: Proxy advisors must disclose and manage potential conflicts of interest, including shareholding, consulting assignments, and other sources of revenue.
Voting Recommendation Policies: Proxy advisors must formulate and disclose their voting recommendation policies, which must be reviewed annually.
Disclosure of Methodologies: Proxy advisors must disclose their methodologies and processes for developing research and recommendations.

LODR Regulations: Listed entities must protect and facilitate the exercise of shareholder rights, including the right to participate in and be informed of decisions concerning fundamental corporate changes.
Proxy Advisor Obligations: Proxy advisors must establish clear procedures for disclosing, managing, and mitigating potential conflicts of interest, and must disclose their reports and recommendations to clients and companies in a timely manner.

Role of Proxy Advisors: Proxy advisors play a crucial role in enabling shareholders to participate in corporate governance decisions, including the nomination and election of members of the board of directors and the exercise of ownership rights by all shareholders, including institutional investors.
Services Provided: Proxy advisors provide advice to institutional investors/shareholders of a listed entity, including voting recommendations on agenda items.
Grievance Resolution: In case of grievances against SEBI-registered proxy advisors, listed entities may approach SEBI for resolution.
Regulatory Framework: SEBI examines matters for non-compliance by proxy advisors with the Code of Conduct under the SEBI (Research Analyst) Regulations, 2014, and procedural guidelines for proxy advisors.
Key Concepts:
- Proxy Advisors: Provide advice to institutional investors in relation to the exercise of their rights in a company, including voting recommendations on agenda items.
- SEBI: The regulatory body that oversees and resolves grievances against proxy advisors.
- Code of Conduct: A set of rules that proxy advisors must follow, as outlined in the SEBI (Research Analyst) Regulations, 2014.

Review Questions:

A person who provides advice to an institutional investor is called a Proxy Advisor.
In case of grievance, the listed entity may approach SEBI.
Proxy Advisors must disclose conflict of interest on every specific document where they give advice, so the statement is False.
Proxy advisors evaluate various corporate events, including Mergers and Acquisitions, Senior Management Appointments, and CEO compensation.

Definition: A Certification Officer is an employee of a Portfolio Manager who has the authority to make decisions related to fund management.
Details: This individual is responsible for overseeing and managing the portfolio, and may work under the guidance of a Portfolio Manager.
Key Roles: The key roles of a Certification Officer or employee(s) with decision-making authority include:
- Making investment decisions
- Overseeing fund management activities
- Ensuring compliance with regulatory requirements
- Maintaining records and reports related to portfolio management
Importance: The Certification Officer plays a crucial role in ensuring that the portfolio is managed effectively and in accordance with the Portfolio Manager's strategy and objectives.