Strategic checks

India has seen big institutional investors in the last five years, but little is known about what these moneybags—particularly the foreign ones—when it comes to their perceptions of corporate governance standards in the country.

Shareholder activism from the foreign institutional investor (FII) point of view, in that sense, is unheard of. A fund house looking to change things is Fidelity International, which operates in India as a mutual fund and an FII.

The US-based global fund house, with assets under management of over $300 billion, has a separate team to look at the interest of Fidelity investments relating to corporate governance and vision of the managements.

“As a general policy we are supportive of the management of the companies in which we invest, but we will nonetheless form our own views on the strategy and governance of a business,” says Trelawny Williams, Director, Corporate Finance, Fidelity International.

He adds that on occasion Fidelity’s views will differ from those of management and where this is accompanied by a failure to achieve reasonable expectations for shareholder return, “we consider promoting change.”

One such situation where Fidelity forced change was when Deutsche Börse Group management intended to acquire London Stock Exchange in 2005-06. Fidelity, which held around 8 per cent in Deutsche Börse, at that time, objected to the decision.

Thanks to resistance from Fidelity along with other investors, Deutsche Börse had to withdraw its bid for the acquisition, says Williams, who finds corporate governance practices to be good in India.

Williams also points out that in situations where his team interacts with companies on key decisions, the fund management team is not in the loop, which acts as a safeguard against insider trading.

The shareholder activism concept, where shareholders are active in the decision-making process of companies, is talked about a lot in India, but has yet to take off in boardrooms and shareholders general meeting. Can Fidelity be that game-changer?

—Virendra Verma