Why has the influence of institutional investors grown so
much in recent years? Reason behind grown influence are as follows I.I. have become largest shareholders in many countries More shareholdings, more power Decrease of individual investors Non-viable Exit option because of size of holdings or policy of holding a balance portfolio Voting rights For Sustainable future Steady profit Comply with code local law and code & abroad Transparency & accountability Power to Implement own view What Role institutional Investors should play in corporate governance? For setting good governance in organization I.I should do the followings
Monitor investee company performance
Compliance of code Meeting board & senior management Conflict of interest Strategy on intervention When & how further action may be taken Voting policy
Sovereign Wealth Fund vs Traditional Institutional
investors? SWF
Institutional investor
Fund owned by government
owned by large pension funds,
insurance companies, mutual funds etc.
Funded by revenues from
commodity exports or from foreign exchange reserves
Gathers large sum of money
from various source
SWF do not actively engage in
CG as II
II actively engage in CG
SWF are not nearly
homogeneous
II are homogeneous
SWF has inadequate
transparency
II has adequate transparency
SWF does not act as
intermediaries
II act as intermediaries between lender and borrower
Internationalization of investment portfolios responsible
for I.Is increased interest in CG? The global opportunity of investment created a new horizon for investor but soon global financial crisis emerged. Investors lost hope and feared of losing it all. Then for restoring trust among investor has highlighted the importance of CG. Because CG ensures responsibility, trust, ethics, value and lower riskiness on behalf of the beneficiaries. Tools of Governance I.I. have? The tools are-
1. One to one meetings communication between II &
company 2. Voting 3. Shareholder proposals 4. Focus list 5. Corporate governance rating system Evidence for improving corporate performance? Nesbitt (1994), Millstein & MacAvoy (1998), MacKinsey (2002), Gompers et al. (2003), Deutsche Bank (2004 a,b), Harmes 2005,07 These are the event of evidence and should be discussed in detail if asked for. I.I. have a responsibility to vote the shares in their investee companies discuss. Vote is a right attached to voting share and is a basic prerogative of share ownership. It is important because II can exercise ownership and control in corporation via voting right. It can be seen as fundamental for controlling some element by shareholders. For any contentious issues or on a particular issue, they may abstain from voting or may vote against a resolution. Appropriate voting could contribute to effective CG. *** Notes: II: Institutional Investors CG: Corporate Governance