Appointment of 'politically exposed persons' to PSU boards faces pushback from mutual funds

A growing number of mutual funds managing over Rs 11 lakh crore in assets are opposing the appointment of Politically Exposed Persons (PEPs) on the boards of listed public sector undertakings, a Moneycontrol analysis of voting disclosures shows.

Asset managers including Axis Mutual Fund, UTI, DSP, Sundaram Mutual Fund and Union Mutual Fund have voted against such appointments across several PSUs in recent months. These funds have argued that nominating politically affiliated individuals to corporate boards “unnecessarily politicizes the decisions of the corporation and distracts the management from its core focus.” They have also pointed out that PSUs often fail to disclose the political backgrounds of such nominees in board-related resolutions.

In contrast, the country’s largest mutual fund houses — including HDFC, SBI, ICICI Prudential, Kotak Mahindra and Nippon India — have supported resolutions seeking to induct PEPs on PSU boards.

During the quarter ended September 30, more than a dozen director-level appointments in PSUs drew negative votes from the above-mentioned funds. These include blue-chip state-run companies such as ONGC, Coal India, NTPC and Bharat Petroleum, as well as smaller entities like RailTel, Chennai Petroleum Corporation and Mangalore Refinery & Petrochemicals.

In August, Bharat Petroleum sought shareholder approval to reappoint Gopal Krishan Agarwal as an independent director. Agarwal has served in multiple policy and governance roles, including on the board of governors of the Indian Institute of Corporate Affairs, but he is also the national spokesperson of the Bharatiya Janata Party, according to his website. Union Mutual Fund and others voted against his reappointment.

Similarly, Sundaram Mutual Fund  opposed the appointment of Aashish Chaturvedi to the board of BHEL. Public information identifies Chaturvedi as a former columnist and a spokesperson of the BJP.

“Aashish Chaturvedi, 47, is a columnist at a newspaper firm. He has over a year’s experience in the corporate sector and over 16 years in the education sector. Public sources indicate he has political affiliations, and we believe his political affiliations may unnecessarily politicize the decisions of the company and distract the management from its core focus. Therefore, we do not support his appointment. The company should have disclosed these affiliations as part of his profile,” Sundaram Mutual Fund said in its voting rationale.

Emails sent to UTI, Sundaram, Union Mutual Fund, HDFC, SBI, ICICI, Kotak Mahindra and Nippon India did not elicit responses. DSP declined to comment. Axis Mutual Fund, in a written response, said: “Axis Mutual Fund follows a structured voting process on shareholder resolutions in which we incorporate insights from external and neutral proxy advisors — a standard industry practice — with the objective being that our decisions are aligned with long-term shareholder value.”

Resolutions appointing PEPs approved

Despite the dissenting votes, all such resolutions were ultimately approved owing to the government’s dominant shareholding in these undertakings.

Legal experts say there is no regulatory bar on appointing PEPs to corporate boards. As the promoter, the central government is free to nominate individuals it deems fit, subject to shareholder approval. Globally, however, several leading institutional investors treat PEP appointments as a governance risk and often assess them with greater scrutiny.

Governance specialists note that while political exposure may increase the risk profile of a company, fund houses should also evaluate the qualifications of nominees. “Having PEPs as directors is a red flag, but we must also examine the merit of the candidate. If an appointee brings relevant expertise that can help the PSU, funds should look beyond political links. In many PSU appointments, however, nominees have limited or no domain experience,” said a governance expert who did not wish to be named.