Company Outsider: Is LIC an insurer of India's millions or a tool for strategic interventions?

"The attempt and not the deed confounds us," says Lady Macbeth in Shakespeare's classic play Macbeth. Sometimes it's not just what you do, but why you do it that raises eyebrows.

Mint's latest investigation into the voting patterns of Life Insurance Corporation (LIC) is a perfect example of that. As per the story, LIC hasn't rejected a single shareholder resolution from Reliance Industries or Adani Group companies over the past two-and-a-half years, even as it routinely rejected similar proposals at other firms. Moreover, it seems to have violated its own published voting policy by approving auditor-qualified accounts, something its guidelines explicitly prohibit.

The state-controlled insurer may well have had good reasons for every vote it has cast or didn’t cast. But by not applying standards uniformly, it has lent itself to doubt. And in matters of fiduciary duty which affects millions of policyholders' savings, doubt is corrosive.

When an institution with assets under management (AUM) of ₹57 lakh crore (a figure that would place it among the top 10 of the world's largest sovereign wealth funds), seemingly breaks its own rules for specific companies, the obvious question is why and what are the implications for its standing as an unbiased investor?

It is an issue that has plagued LIC in the past. The Washington Post recently alleged that the finance ministry orchestrated its Adani investments; short-seller Hindenburg raised similar questions in 2023. Both allegations were refuted on grounds they lacked supporting evidence. But the latest records accessed by Mint are irrefutable indicating a clear pattern of voting decisions that prima facie seem influenced by factors other than merely financial. Nor is it the first such instance.

Like in the 1980s, when London-based industrialist, the late Swraj Paul, launched hostile takeover attempts on Escorts and DCM. Paul built larger stakes than the promoters. LIC, which controlled the decisive votes in both companies, sided with incumbent families, blocking the bids despite Paul's premium offer to shareholders. It was an early instance of the insurance major choosing (or forced to choose) sides based on considerations other than investment returns.

Fast-forward to 2009-2014 during UPA 2 when LIC became the government's chosen white knight for its PSU disinvestment program. It absorbed 60% of NMDC's offering, nearly half of NTPC's, and all of BHEL’s block deals, effectively injecting over ₹30,000 crore into the stuttering disinvestment program. Each episode followed the same script: LIC steps in as a bail-out option leading to controversy followed by the company’s insistence that there’s no mala fide intent and that compliance has been ensured.

The doubts are never laid to rest and get resuscitated when the story repeats itself next time.

The pattern exposes LIC's essential dichotomy: an insurer by charter, sovereign investor by circumstance. That’s because while its huge asset base allows it to wield more financial power than any domestic institution, unlike the world's premier sovereign funds, it operates without firewalls separating investment decisions from other priorities such as stabilizing markets.

Norway's Government Pension Fund Global operates through Norges Bank Investment Management with strict independence from external considerations. It publishes voting records, applies transparent governance principles, and excludes companies through rigorous ethical review. Singapore's GIC and Temasek maintain similar independence, with professional committees making decisions based on risk-adjusted returns. These funds have earned global credibility because markets trust them as fiduciary investors whose decisions are driven purely by returns maximization.

LIC seems to operate differently allowing the rationale for its investment decisions to be diluted by what in its response to the Mint story it has termed “factors such as overall economic and strategic considerations". While it hasn’t specified what those strategic imperatives are, the fact is this creates ambiguity which comes with measurable costs.

After Hindenburg's 2023 report, LIC's market cap fell ₹65,000 crore in five trading sessions. When LIC votes, minority shareholders cannot gauge whether professional judgment or other factors prevailed. Meanwhile, the auto driver in Patna and the shopkeeper in Surat have no way of knowing whether their premiums are deployed for maximum returns or as tools of strategic intervention. Five decades of recurring controversy and the current voting record pattern, stem from the same structural dichotomy.

The solution isn't dismantling LIC or stripping its voting rights but accepting that the organization has become a sovereign investment vehicle managing citizens' savings and creating governance structures matching that function. Its voting policies must be consistently applied based on transparent principles, not selectively enforced with unexplained exceptions. The only way that will happen is if the fundamental tension between LIC's insurance mandate and its assumed role of an instrument for managing economic crises is dealt with.