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Institutional EYE

Commentary on Corporate Governance Issues

Model Stewardship Code:For all Indian Institutional Investors- IiAS & Cyril Amarchand Mangaldas


Stewardship code is a set of principles or guidelines aimed primarily at institutional investors, who hold shares, and thus, voting rights in companies. Implying that it is part of the fiduciary duty of investors to behave as good owners of companies, stewardship codes require investors to monitor and, where necessary, engage with companies on material matters, including environmental, social, governance, strategy, performance and risk issues and to vote their shares at company AGMs and EGMs.

Companies and investors have a symbiotic existence: companies need investors, just as much as investors need companies. Consequently, effective stewardship and effective governance go together. For a company to be able to act in the investors’ best interest, it also needs to understand the investors’ perspective. The stewardship code sets out a framework that encourages the investors to engage with companies they have invested in and their boards. This benefits both, the companies and the investors.

Stewardship codes are being introduced globally. After the UK adopted a Stewardship Code in 2009, about eight other countries have similarly mandated stewardship requirements, including a few Asian countries such as Malaysia, Japan, and Taiwan. Singapore and South Korea, have set up working groups to develop stewardship codes. Under the umbrella of a stewardship code, investors have been able to achieve different agendas – from getting more independent directors on boards, to ensuring that annual reports are being published in time.

India, to a large degree, has relied on regulations to evolve its corporate governance agenda. The more recent regulations have balanced this agenda by empowering the shareholders to assert their rights – in the form of more convenient voting processes, and requisite specific approvals in the case of related party transactions. However, these measures are effective only on specific issues. To build a wholistic environment that rewards good governance practices, the institutional investors must undertake focused stewardship activities.

While the Securities and Exchange Board of India has long since mandated mutual funds to vote on shareholder resolutions, the Insurance Regulatory Authority of India (“IRDA”) on March 22, 2017 prescribed stewardship principles to be adopted and implemented by the insurers (“Stewardship Principles”). Insurers are required to adopt a policy based on the Stewardship Principles on or prior to September 21, 2017.

An IiAS and Cyril Amarchand Mangaldas joint initiative

With a view to help the insurers set out their stewardship codes, Institutional Investor Advisory Services India Limited (IiAS) and Cyril Amarchand Mangaldas, Advocates & Solicitors jointly present a framework of the model code. This model code may be adopted, with suitable customization, by insurers.

For each of the principles, the document sets out a basic policy that complies with IRDA requirements. It then suggests additions, which provide for a higher level of compliance in the nature of best practices.

For model stewardship code click here

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