Implications of SEBI Advisory Panel Recommendations on Economy

Implications of SEBI Advisory Panel Recommendations on Economy

Question: For giving institutional investors greater impetus in governance matters of listed firms, an advisory body of SEBI has suggested a new code on lines of Stewardship Code of the UK.Discuss its implications for the economy.

- For giving a boost to institutional investors in governance matters of listed firms, high level advisory body of SEBI has suggested a new code on the same lines as Stewardship Code of the UK

- UK Code has been in place since the year 2010

- It focuses on enhancing the engagement quality between asset managers and companies for improving long term risk adjusted returns to shareholders

- SEBI’s International Advisory Board has also indicated there is more need for participation of institutional investors in the governance of companies where investment has been made

- SEBI has already mandated mutual funds to disclose certain logic for supporting voting decisions on proposals placed before shareholders by listed companies

- There is need to further expand this requirement for other institutional investors as well

Apart from mutual funds, major institutional investors in listed companies in India comprise the following:

- Foreign Institutions

- Insurers

- Banks

- Hedge Funds

- Corporate bodies

- The International Advisory Board of SEBI felt mutual funds had doubled after regulatory was asked to fund houses to reveal rationale behind voting decisions

- Same move for another class of investors would enhance participation and involvement of institutional investors in governance matters

Facts and Stats

- SEBI will initiate discussions with regulators including IRDAI, RBI and PFRDA for pension funds

- The Financial Reporting Council of the UK has indicated that the Stewardship Code aims to foster better engagement quality between companies and investors

- This will deliver better company performance and better return to investors

- UK Authorised Asset Managers are needed to publish a statement of their commitment to the code or explain its relevance for this business model