SEBI issues procedural guidelines for proxy advisors

Mumbai

The Securities and Exchange Board of India (SEBI) on Monday came up with a set of procedural guidelines for proxy advisors.

Proxy advisory firms advise shareholders on corporate governance-related issues and give recommendations regarding voting on resolutions.

In a circular, Sebi said that proxy advisors shall formulate the voting recommendation policies and disclose the updated voting recommendation policies to its 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," it said.

They would also have to disclose the methodologies and processes followed in the development of their research and corresponding recommendations to its clients, as per the guidelines. The advisors shall alert their clients within 24 hours of receipt of information about any factual errors or material revisions to the report.

The market regulator has made it mandatory for the proxy advisors to share their report with their clients and the company at the same time.

"This sharing policy should be disclosed by proxy advisors on their website. The 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," said the Sebi circular.

If the company has a different viewpoint on the recommendations stated in the report of the proxy advisors, then the 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.

Among other requirements, the circular said: "Proxy advisors shall disclose conflict of interest on every specific document where they are giving their advice. Further, the disclosures should especially address the possible areas of potential conflict and the safeguards that have been put in place to mitigate possible conflicts of interest.

The new guidelines will come into effect from September 1, 2020.