SEBI notifies on Procedural Guidelines for Proxy Advisors

SEBI - proxy advisors - procedural guidelines - Taxscan

The Securities Exchange Board of India (SEBI) has notified the procedural guidelines for proxy advisors. According to SEBI (Research Analyst) Regulations, 2014, a proxy advisor is any person who provides advice, through any means, to institutional investor or shareholder of a company, in relation, to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items.

Now apart from abiding by Code of Conduct specified on the Regulations it has also notified on complying with the following provisions :

a)Proxy  Advisors shall formulate the voting recommendation policies and disclose the updated voting recommendation policies to their clients. Proxy Advisors shall ensure that the policies should be reviewed at least once annually. The voting recommendation policies shall also disclose the circumstances when not to provide a voting recommendation.

(b)Proxy Advisors shall disclose the methodologies and processes followed in the development of their research and corresponding recommendations to its clients.

(c)Proxy Advisors shall alert clients, within 24 hours of receipt of information, about any factual errors or material revisions to the report.

(d)Proxy Advisors shall have a stated process to communicate with its clients and the company.

(e)Proxy Advisors shall share their reports with their clients and the company at the same time. This sharing policy should be disclosed by proxy advisors on their website.  Timeline to receive comments from the company may be defined by proxy advisors and all comments/clarifications received from the company, within the timeline, shall be included as an addendum to the report. If the company has a  different viewpoint on the recommendations stated in the report of the proxy advisors, then proxy advisors, after taking into account the said viewpoint, may either revise the recommendation in the addendum report or issue an addendum to the report with its remarks, as considered appropriate.

(f)Proxy Advisors shall  clearly  disclose in their  recommendations the  legal requirement  vis-a-vis higher  standard  they  are  suggesting if  any, and the rationale behind the  recommendation of higher standards.

(g)Proxy Advisors shall disclose conflict of interest on every specific document where they are giving their advice. Further, the disclosures should especially address possible areas of potential conflict and the safeguards that have been put in place to mitigate possible conflicts of interest.

(h)Proxy Advisors shall establish clear procedures to disclose, manage and/or mitigate any potential conflicts of interest resulting from other business activities including consulting services, if any, undertaken by them and disclose the same to clients

These provisions are in place to ensure more transparency in proxy advising to benefit its clients and to increase its efficiency.