1. ROLE OF INSTITUTIONAL INVESTORS IN ENFORCING CORPORATE GOVERNANCE IN FIRMS
Yezdi Malegam
Goa

2. PLAN Conceptual Base Corporate Governance in India
Role of Institutional Investor

3. MAJOR IMPERATIVES Growing dissatisfaction with financial statements
Growing dissatisfaction with boards
Changing profile of the shareholder
Birth of knowledge society
Competition for larger share of international funds

4. MODELS ‘Outsider’ model – Anglo American ‘Insider’ model – European
‘Founding family’ model – East Asian

5. BASIC PRINCIPLES Accountability Transparency
Equality of treatment for all stock-holders

6. KEY PLAYERS
Management
Board of Directors
Shareholders

7. ATTRIBUTES OF BOARD MEMBERS
Independent of management
Minimum level of financial literacy
Some members to have knowledge of the business
Willing to devote necessary time and attention

8. MAJOR PROVISIONS OF THE CODE
Composition of Board
Formation of Committee
Audit
Investor Protection and Grievance
Management Analysis and Discussion
Other Disclosures
Matters which the management must mandatorily place before board

9. OTHER MAJOR SEBI INITIATIVES
Disclosure in Offer Document
Unaudited quarterly financial statements
Half yearly reviews of financial statements
Accounting Standards
Insider Trading Code
Take-Over Code

10. DIFFICULTIES IN COMPLIANCE
Applicable only to listed companies
Enforcement through listing agreements
Compliance in form but nor always in substance

11. DIFFICULTIES IN COMPLIANCE …2
Some common abuses
Non-executive directors not really independent
Inter-group advances / investments with related parties
Investments in non-core assets

12. ROLE OF THE INSTITUTIONAL INVESTORS
Do institutional investors need to get involved?
What should be the nature of their involvement?
How far have they been involved?

13. INVOLVEMENT OF THE INSTITUTIONAL INVESTORS - Pro
Significant stakes in companies
Can exercise significant influence on promoters and management and prevent abuses
Better access to information and better monitoring capabilities
Significant positive correlation between corporate governance and stock market performance

14. INVOLVEMENT OF THE INSTITUTIONAL INVESTORS – Pro …2
Research studies show countries and companies with weak corporate governance suffer larger collapses when hit by adverse shocks and are subject to greater volatility
Major influence in attracting FDI

15. INVOLVEMENT OF THE INSTITUTIONAL INVESTORS – Con:
Investment objectives and compensation system discourage participation
Conflict of interest with primary fiduciary responsibility to own investors and beneficiaries
Investors like MFs have short term performance measurement which works against active monitoring

16. NOMINEES ON BOARDS INEFFECTIVE
Poor selection
No formal reporting system
Inadequately remunerated
No clarity of role
Unwilling to accept responsibility
Generally averse to risk taking

17. ACTIVE ROLE SHOULD ENSURE
Board members have adequate experience and are truly independent
Executive remuneration, particularly for family members, is not excessive
Early warning signals are detected from wealth of information made available to shareholders

18. ACTIVE ROLE SHOULD ENSURE …2
Companies funds are not diverted to non-core activities or for benefit of related parties
Institutional investors lead shareholders in demanding corrective action where such action is warranted