Increasing the role and relevance of ‘Proxy Advisory Firms’ in corporate governance

Until very recently, the recommendations of proxy advisory firms did not impact companies much, as it did not have the power to influence or fail/ stop a resolution from being passed. However now, the recommendations of proxy advisory firms are becoming increasingly relevant given that many institutional investors are basing their positions while voting on resolutions on such advice. This is evidenced from the fact that a proxy advisory firms have recently managed to prevent a resolution for granting employee stock options to employees of a group entity of a very large Indian bank from being passed due to the absence of “any compelling reasons”.[1] In another interesting case, a proxy advisory firm came very close to preventing a resolution pertaining to an increase in the remuneration of a director from being passed on account of this increase being “skewed” and “guaranteed”.[2]