Sound Corporate Governance Needs Institutional Investors to be More Vocal

The AGM season in India has ended, at least for companies that follow an April-March financial year. These meetings, mandated under the Companies Act, 2013, are an annual ritual of corporate democracy. Balance sheets are presented, strategies defended, and resolutions put to a vote. On paper, it is the moment when every shareholder, large or small, can exercise their rights. In practice, AGMs in India have long carried a ceremonial air. Promoters held sway, resolutions passed with ease, and minority shareholders often watched politely from the margins. The script appeared predictable, the outcomes predetermined.

What if institutional investors began asking the questions that truly matter? Why are independent directors reappointed without meaningful scrutiny of their track record? How do promoters justify executive pay that grows faster than shareholder value? Why are related-party transactions pushed through without clearer disclosure of risks? How resilient are the company’s supply chains, and what is the board’s plan for climate and technology disruptions? What commitments are being made to protect minority shareholders in succession planning or family disputes? And, above all, how does the board demonstrate that it serves the company’s long-term interests, not merely the promoters’? These are questions investors could ask, but too often they remain unspoken.

Yet corporate India is no longer what it was. Reforms in company law, stewardship codes, and disclosure rules have slowly reshaped expectations. Domestic mutual funds manage trillions of rupees in household savings. Global investors, armed with ESG frameworks, demand higher standards of governance. Insurance funds and pension managers control vast pools of long-term capital. The rise of these institutions means the days of AGMs as mere rituals are fading. Promoter dominance still defines the landscape, but counterweights are slowly emerging.

The reality, however, is stark. The majority of India’s large listed firms remain promoter-owned and promoter-managed. Shareholding patterns reveal the imbalance: promoters often retain 40–60%, while institutions and the public share the rest. This concentration of power seeps into the boardroom. Independent directors, in theory guardians of shareholder interest, often resemble courtiers. To borrow and adapt a famous line from The West Wing, they “serve at the pleasure of the promoter.” Regulations aside, compliance can be ticked into place, while genuine independence of voice and judgement remains uneven.

Boards are, in principle, the first line of guardianship for corporate governance. Their mandate is to ensure accountability of both promoters and management, to represent shareholder interests, and to challenge decisions where needed. But in practice, the concentration of promoter power has often diluted this independence. That is why the burden cannot rest on boards alone. Institutional investors, with their scale and fiduciary responsibility, must act as the second pillar of governance, not as critics from the sidelines, but as active participants in shaping a culture of accountability.

This is where institutional investors are expected to act as the counterbalance. Their fiduciary responsibilities compel them to look beyond short-term gains. Their scale gives them the power to tip outcomes. And their stewardship obligations mean that abstention should not be mistaken for neutrality; it should be called out for what it is - abdication. When they choose to act, their votes can redefine the contours of governance in India.

There have been moments when this power has been visible. Resolutions on executive pay, related-party transactions, or board appointments have faced pushback, sometimes forcing promoters to recalibrate. These interventions remind us that investor votes are not ceremonial but consequential. They also show regulators and the public that accountability in Indian boardrooms is possible.

But the record is uneven, and therein lies the concern. Too often, institutions prefer abstention to opposition. Some cite inadequate disclosures. Others worry about jeopardising relationships with promoters whose companies may be large borrowers or issuers.

One had expected a different script. Investor activism was meant to become sharper, proxy advisory firms were expected to go all guns blazing, and institutional investors were expected to emerge as pillars of corporate governance. There have indeed been flashes of this spirit — bold recommendations, visible pushback, and occasional headline-making votes. Yet the momentum has not been sustained.

What we see instead is episodic activism rather than a steady assertion of stewardship. Institutional investors such as mutual funds, insurance companies, and pension funds also appear constrained by another factor: promoter loyalty. Many worry that taking a firm stand against one company could sour relationships with other promoter groups, and even risk the inflow of mandates or assets from them. This quiet calculation often weighs heavier than fiduciary duty, and it explains why votes that could have shifted outcomes sometimes dissolve into silence or abstention. The sense of institutions being almost beholden, reluctant to upset promoters despite their fiduciary responsibilities, hangs uneasily over the market.

Accountability must extend beyond promoters to management teams as well. Executive compensation, succession planning, risk oversight, and capital allocation are areas where institutional votes can compel discipline. Too often, boards have waved through remuneration packages disconnected from performance, or approved strategic moves without sufficient scrutiny. By challenging management excesses and insisting on long-term value creation, institutions can signal that accountability in Indian companies is not confined to promoter behaviour alone, but is expected of the professional managers who act as custodians of shareholder wealth.

If institutional investors embrace their stewardship role fully, they can lift governance standards across the system. They can force promoters to engage more transparently, ensure boards are not mere extensions of promoter will, and give minority shareholders confidence that their voices are heard. Stronger governance, in turn, lowers the cost of capital, attracts global funds, and improves valuations. The prize is not just cleaner boardrooms but deeper and more resilient markets.

The risks of inaction are equally clear. If AGMs continue as predictable rituals, India will be seen globally as a promoter-dominated market where minority rights are secondary. That perception raises red flags for long-term investors and could limit capital flows. Worse, weak governance creates fragility within companies themselves. Decisions driven by unchecked promoter interests can erode trust, damage reputation, and in extreme cases, destroy value for all shareholders. Passive institutions thus bear a share of responsibility for the excesses that follow.

Responsible voting does not mean confrontation for its own sake. It means engaging boards early, asking sharper questions, and signalling expectations well before the AGM vote. It means institutions disclosing not just how they voted but why, in clear and substantive terms. It means building research capacity so that abstentions are based on evidence, not convenience. Above all, it means recognising that fiduciary duty is owed not to promoters but to millions of savers and investors whose money they represent.

But stewardship cannot be confined to voting screens alone. Institutional investors rarely appear at AGMs in person, preferring instead to record their stance silently via e-voting. That passive approach misses a deeper opportunity: physical presence and live engagement are essential to participatory corporate democracy. When institutions attend AGMs and ask probing questions in the meeting room, they do more than challenge promoters; they illuminate for other shareholders what accountability looks like in practice. Their interventions become lessons in action, helping transform passive audiences into more informed participants.

Equally, institutions must show solidarity. Too often, when one investor raises a concern, others recede into silence. The result is fragmented dissent that promoters can easily dismiss. Quantum Mutual Fund’s solitary battle against the delisting of ICICI Securities is a telling case, essentially one investor shouldering a fight that might have carried more weight if others had rallied behind it. A more coordinated show of force would strengthen participatory corporate democracy, sending a message that stewardship is collective.

Policy too has a role. Regulators can strengthen disclosure norms for voting policies, require rationales for abstentions, and align stewardship codes more closely with fiduciary duties. But regulation is only the floor, not the ceiling. 

True stewardship culture cannot be legislated. Most investors intellectually acknowledge that strong governance lowers risk, improves capital allocation, and sustains value. Yet, as a general practice, they have not fully comprehended or acted on the truth that markets reward companies where boards are independent, disclosures are credible, and minority rights are protected. The evidence is clear: good governance is a valuation premium. What remains unclear is why investors who know this so well often behave as if it were optional.

As India’s economy expands, the stewardship role of institutions will only deepen. Household savings are flowing into equities through mutual funds and retirement products. Global investors are scrutinising ESG standards closely. The legitimacy of corporate India, at home and abroad, will hinge on whether institutions play their role as active guardians of trust. Promoter dominance will not disappear overnight. But the silent majorities of institutional investors have the power to reshape the plot. The question is whether they will finally use the power they hold or remain spectators in a play still scripted by promoters.