Listed entities may have grievances against proxy advisers (PAs). SEBI has established a mechanism for the resolution of such grievances. This article provides a comprehensive technical analysis of the grievance resolution process between listed entities and PAs.
Regulatory Basis
Regulatory Framework
The circular dated August 4, 2020 (SEBI/HO/CFD/CMD1/CIR/P/2020/119) provides the framework for grievance resolution between listed entities and proxy advisers.
LODR Regulations
Regulation 4(2)(a) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 casts certain obligations on listed entities to protect and facilitate the exercise of the rights of shareholders.
Why Grievances Arise
Nature of Work
Proxy advisers provide advice to institutional investors/shareholders on voting recommendations. Due to the inherent nature of the work, it is probable that proxy advisers and listed entities may have different views on any agenda item of the listed entity, leading to grievances.
Types of Grievances
- Inaccurate information in PA reports
- Lack of engagement with the company
- Inadequate disclosures
- Procedural issues
Grievance Resolution Process
Step 1: Approach the Proxy Adviser
The listed entity should first approach the PA directly.
Step 2: Approach SEBI
If not resolved, the listed entity may approach SEBI.
Step 3: SEBI Examination
SEBI will examine the matter for non-compliance by PAs with:
- Provisions of the Code of Conduct under Regulation 24(2) read with Regulation 23(1)
- Procedural guidelines for proxy advisers
Step 4: Action
If non-compliance is found, SEBI may take appropriate action.
Non-Compliance Areas
1. Code of Conduct Violations
- Failure to act honestly and in good faith
- Failure to act with due skill, care, and diligence
- Failure to address conflict of interest
2. Procedural Guideline Violations
- Failure to formulate voting recommendation policies
- Failure to disclose methodologies
- Failure to share reports simultaneously
- Failure to disclose conflicts of interest
Applicability Timeline
The provisions became applicable with effect from January 1, 2021.
Common Compliance Gaps
1. Not Responding to Grievances
Some PAs do not respond to listed entity grievances.
Solution: Respond to all grievances promptly.
2. Not Complying with Code of Conduct
Some PAs do not comply with the Code of Conduct.
Solution: Comply with all Code of Conduct provisions.
3. Not Following Procedural Guidelines
Some PAs do not follow procedural guidelines.
Solution: Follow all procedural guidelines.
Consequences of Non-Compliance
1. Regulatory Action
SEBI may take action for non-compliance.
2. Monetary Penalties
SEBI may impose monetary penalties.
3. Reputational Damage
Non-compliance can damage the PA's reputation.
Conclusion and How Anuj Desai & Associates Can Help
Grievance resolution between listed entities and PAs is a critical compliance area.
Anuj Desai & Associates offers specialized services to help PAs comply with grievance resolution requirements:
- Grievance handling support
- Code of Conduct compliance
- Procedural guideline compliance
- Compliance audit and advisory
Contact us today to ensure your grievance resolution practices comply with SEBI requirements. Our team will guide you through the process.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for legal and compliance matters. Anuj Desai & Associates is a SEBI compliance consulting firm based in India.