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INSTITUTIONAL
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SHAREHOLDERS AND
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CORPORATE
GOVERNANCE
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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
GOVERNANCE

TABLE OF CONTENTS
Table of Contents..................................................................................................2
Introduction............................................................................................................3
Concept.................................................................................................................4
Principles of Corporate Governance......................................................................5
i.Rights and Equitable Treatment of Shareholders................................................5
ii.Interests of Other Stakeholders..........................................................................5
iii.Role and Responsibilities of the Board..............................................................5
iv.Integrity and Ethical Behavior............................................................................5
v.Disclosure and Transparency.............................................................................6
Growth of Institutional Share Ownership...............................................................6
Influence of Institutional Investors.........................................................................7
Institutional Investors As Activist _Case Studies.................................................10
Tools of Corporate Governance{NO LINK WITH THE QUESTION.....................11
i.One to One Meetings.........................................................................................12
ii.Voting................................................................................................................12
iii.Focus Lists.......................................................................................................12
iv.Corporate Governance Rating System............................................................12
Role of Audit........................................................................................................13
Conclusion...........................................................................................................13
References..........................................................................................................16

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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
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INTRODUCTION

As I already mentioned that all information should be properly

referenced with oxford style(plz visit oscola referencing) it includes
single idea/word/lane etc. in ref plz mention page no as well. Most of
the sources are unreliable like some unknown articles etc. in law all of
these things matter.

PLEASE VISIT.

1- WWW.FRC.ORG.UK
2- CHEFFINS (CHAPTER 13) PAGE 625-641 AND 455-470
3- SOLOMON CORPORATE GOVERNANCE AND ACCOUNTABLITY CH
5,9.10
4- WWW.INSTITUTIONALSHAREHOLDERSCOMMITTEE.ORG.UK
5- THE MYNERS REPORT HTTP://WWW.HM-
TREASURY.GOV.UK/MEDIA//843FO/31/.PDF
6- STAPELDON, GP INSTITUTIONAL INVESTORS

Corporate Governance1 play vital role in increasing the economy of any

country. A strong Corporate is responsible for the burly capital market
and to strengthen the capital, Corporate always need some investors and
shareholders. From last 15 years, shareholders and investing activities
play an important role in financial market. Most the Companies’ in spite of
paying the pension funds to their employees, they used to give them
share in their Company through share options. The question arises that
why does business exist and for whom?2 The answer is very simple, that
firms want to increase profits, value of their shareholders and to
distribute some of their profits to their shareholders after considering
various development expenditures, as it has always been the main
objective of every organization along with other secondary objectives. As
per research, in countries like London and New York, shareholders
engagement is very limited whereas in Pakistan organizations are more
influenced by shareholders decisions3. Many examples will be discussed
regarding the interference of investors in Corporate Governance which
are sometimes favorable and sometimes creating hurdles for the
Management of the Company to take steps for opulence. Moreover,
Corporate Governance is most often viewed structure that determines

1
Company Law Review, Modern company law for a competitive economy: developing the frame work (London, HMSO, 2000)
at para 3.15 and 3.82.
2
Becht, Marco, Patrick Bolton, Ailsa Röell, "Corporate Governance and Control" (October 2002;
updated August 2004). ECGI - Finance Working Paper No. 02/2002
3
Corporate Governance International Journal, "A Board Culture of Corporate Governance, Vol 6 Issue 3 (2003)

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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
GOVERNANCE
corporate direction and progress4. { NO REFE) According to
Matheson5:

“Corporate Governance is a field in economics that investigates how to

secure/motivate efficient Management of corporations by the use of
incentive mechanisms, such as contracts, organizational designs and
legislation. This is often limited to the question of improving financial
performance, for example, how the corporate owners can
secure/motivate that the corporate managers will deliver a competitive
rate of return.”

CONCEPT
In order to understand the relationship and role of Corporate Governance
and investors, it is important to know that from where the concept rises?
The concept actually ascends from US. In 19 th century, state corporation
laws gave rights to the Corporate to govern without the consent of
shareholders in exchange of legal benefits in order to make Corporate
Governance more effective and efficient. Since that time, most largely
public Companies started distributing their profits and wealth among,
Management and shareholders were neglected. They were shown losses
and no one was there who can speak on behalf of them. In 20 th century,
legal scholars like Adolf Augustus Berlet, Edwin Dodd and Gardiner
change the role of the society. Ronald Cease’s in “The nature of the firm”
(1937) described the role of the Company and how should they behave
towards their shareholders. In 1990’s 6, Corporate Governance received
attention from the Board of Directors, who were elected to fight for the
rights of shareholders. It can be more clearly defined with the real
instance when in 1997; the East Asian financial crisis hit the economies of
Thailand, Indonesia, Philippines and South Korea, they were severely
affected by the exit of foreign capital from their Countries. It happened
due to lack of Corporate Governance performance and weakness of
shareholders interference into the business. In early 2000’s, after the
huge bankruptcies, the interest of investors enhances and they start
taking active part in the growth of Corporate network as then they
realized the fact that they are the actual owners and the Management
therein are the stewards/custodians of their funds. Therefore, there may
exists chances of conflicting interests of the Owners and the Directors

4
Crawford, Curtis J. (2007). The Reform of Corporate Governance: Major Trends in the U.S.
Corporate Boardroom, 1977-1997
5
Mathieson refers about the Corporate governance from the book “Corporate Governance” by A.C
Fernando
6
the myners report on institutional investment in the uk (2001) , myners, p., institutional investment in
the uk: a review (london H.M. treasury 2001 particularly paras 5.73-5.94 available at
http://www.hm-treasury.gov.uk/media//843FO/31.pdf accessed on december 2010

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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
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which needs to be resolved abruptly in order to resolve these issues 7.
( NO REFERENCE)

PRINCIPLES OF CORPORATE GOVERNANCE8

The key elements of effective Corporate Governance are honesty, trust,
performance, responsibility, accountability, respect and fulfilling the
commitment.

The other principles included, are9:

I. RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS

The first and foremost responsibility of Corporate is to give equal rights to

all the shareholders. It can be given to them by communicating the
information and decisions of the Company taken for the growth and
expansion of the Company.

II. INTERESTS OF OTHER STAKEHOLDERS

It is organization’s responsibility to take care of the stakeholders and to

present them with the legal financial statements as well.

III. ROLE AND RESPONSIBILITIES OF THE BOARD

It is the responsibility of the board (representatives of shareholders) to

have skills, competencies and relevant understanding about the business
issues and Management performance. Their key responsibilities are to
help CEO in taking not financial and non-financial strategic decisions and
the financial analysis as a whole. Their motive is not to make money but
how to utilize it effectively.

IV. INTEGRITY AND ETHICAL BEHAVIOR

Ethical and responsible decision making is very important for a Company

to stay in long run and to avoid legal suits/ consequences which could be
faced by the organizations. This helps in reducing risk factors and
enhances reliability factor in front of investors and shareholders. Because
of this, many organizations have established “Compliance and Ethical
Programs” to maximize the ethical and legal boundaries.

7
Enriques L, Volpin P. (2007). "Corporate governance reforms in Continental Europe". Journal of
Economic Perspectives 21 (1): 117–140. Doi:10.1257/jep.21.1.117.
http://www.tkyd.org/files/downloads/Corporate_Governance_Reforms_in_Continental_Europe.pdf.
Retrieved 2009-08-13.
8
Harvard Business Review, HBR (2000). Harvard Business Review "On Corporate Governance".
Harvard Business School Press
9
The principles of corporate governance available at
http://www.oecd.org/topic/0,3699,en_2649_34813_1_1_1_1_37439,00.html accessed on 29
november 2010

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V. DISCLOSURE AND TRANSPARENCY

It is organization’s obligation to elucidate the responsibilities and

accountability of Directors to the shareholders. They should implement
the strategies and procedures defined by them in order to secure the
integrity of the firm. ( NO UNDERSTATNDING THE LINK OF THIS
WITH THE QUESTION)

GROWTH OF INSTITUTIONAL SHARE OWNERSHIP10

The importance of institutional investors is increasingly important
nowadays in many countries. When the private Companies were unable to
elevate their capital, they started publicizing their firms and increasing
their funds by selling shares and generating funds from investment
Companies. In this way the growth of institutional investors share
ownership enhanced and results in benefits for both investors and the
Company. UK and USA are the best examples in which individual
ownership have now transferred to the powerful institutional shareholders
or investors. Institutional investors include banks, pension funds,
insurance Companies etc. They play an important role especially for the
developing countries, who seek institutional investors to provide them
funds in order to gain market share. As per research, institutional
shareholders own over 55% of US equity whereas 45% in UK
(http://inderscience.metapress.com). Even today, many international
firms are making pension holders their shareholders and investing their
pensions into the expansion of the business. Kingfisher Company is also
one of the example of them, who when realized that it’s better to allot
shares to old employees rather giving them the pensions and reducing
the asset base and increasing the liabilities of the firm. Similarly Gillan
and Starks (2003) share their perspective about the growth of
institutional investors in a way that:

“The presence of institutional investors should lead to more informative

prices, and consequently lower monitoring costs for all investors. Thus,
the outcome should be better monitoring of managers and better
Corporate Governance.”

(Gillan and Starks, 2003, p.38)11

With above discussion, have you ever thought that increasing of

shareholders activism can be a problem for the corporate? Doesn’t that
corporate rules are split-up due to growth of institutional investor’s
shares?

10
“Corporate Governance: A Synthesis of Theory, Research, and Practice” by H. Kent Baker, Ronald Anderson
(2010)

11
For more details , refer “Gillian and Starks” (2003)

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The answers of the following queries might be clear with the reference of
an article “Unhappy investors force change12” by John Authers and David
Wighton, In the article, they clarify that activism of investors has now
become the investment strategy. According to them US government was
discomfort when investors and shareholders activism was back. Many
companies were split up due to pressure from investors which might give
a negative impression. But the question arises that Are corporate the
weaker that their rules split up just because of activism of investors? As
per my opinion, the fact is that corporate were working for the sake of
earning profits and were trying to acquire companies in order to gain
market share but they didn’t realize that they are damaging the value of
their shares. Therefore when investors forces companies to change their
verdicts so they either reform their governance or split-up their rules.
According to CALpers, the largest multinational money investor manager
in the US, states that 113 companies appeared to be in the focus list as
they were not performing corporate governance well. Unhappy
shareholders always pressuring to change their boards. Peter Langerman
says that there is nothing new about investor’s activism; the number of
examples is increasing day by day. Twenty years ago when the
shareholders were not happy with the performance of the company they
might walked away to the other but now shareholder investors are
activist. A shareholder activist involves about 50% to 60% control but
forces the board to pay the attention and try to improve the share price.
In Europe, shareholders forced Deutsche Borse to elect new Chief
executive, after objections to the market’s hostile bid for London stock
exchange. The companies which fall in the list of shareholder activist are
growing and now “shareholder activism” is regarded as the strategy
through which companies can thrive. Hence, the growth of institutional
factors is not only increasing in UK or USA but it has been influenced in
many parts of the world which includes Pakistan as well.

13
INFLUENCE OF INSTITUTIONAL INVESTORS

Do you know why any business doesn’t claim to have a customer focus?
It’s because that they find it too much sentimental and their actions
cannot match to the strategies that they made before investments and
the result they received are sometimes not up to the benchmark. It is due
to poor Management proficiency. In this case, investors lend a hand to the
poor firms to improve the performance of those firms and pressure the
Management to enhance the wealth and value of the shares. Institutional
shareholders have become important because they are helping
Companies to take decisions and improving their working capital and
capital budgeting processes. They keep an eye on various investments
and try to get more outcome as expected. Due to the influence of these
investors, Organizations are able to control their quality, set their
standards/benchmarks and identify & meet their core competencies. It is
12
“Unhappy investors force change” by john authers and David Wighton was published in Financial Times on
Monday, November 07, 2005
13
Precise information is given “institutional investors and Corporate governance” (1994) by Theodar Baums,
Richard M. Buxbaum
For more information about influence of investors refer, “Governance and ownership” by Robert Watson (2005)

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a fact that corporate managers strives for high profits and raising funds
and tends to hide their investment performance from their owners. 14
Unfortunately, these practices of Companies are no more live out, as
institutional investors take leads of their clients and collect funds or
advice Management to invest those funds into the leading or profitable
firms and try to generate more profit and distribute them to the clients for
better future growth. As they are liable to payback the clients, they use to
have checks on the performance of the board and Companies policies. As
professionals, institutional investors are the best in judging the goodwill
and wealth of the Company in long run. According to Hector Sants15:

“Delivery of supervision has to be done in partnership with responsible

firms, shareholders and auditors.”

As institutional Shareholders are working proactively and objectively due

to which many corporate firms are uncomfortable as they are not able to
take their decisions and adjust their performances on their own wish 16.
They always need to ask/ to take voting from their investors for every
step which sometimes irritate them and find themselves as slaves. As per
my opinion, investors are absolutely performing the best job of evaluating
the Company performance and guiding them properly to avoid past
experiences discussed above. Institutional investors are just trying to
fulfill their principles in order to safeguard the rights of shareholders and
clients. Their principles include:

1. They should discussion with Companies based on the mutual

understanding of the objectives.
2. During the evaluating the Company’s performance, they should
give weight to all the factors that are attention to them.

3. They have full rights to utilize their votes.

Lets discuss an the recent example of china, where investors are facing
special problems due to close relations of issuers and governmental
agencies national enterprises and their close links with the structures. (By
Allison Garrett17-, Senior Vice President for Academic Affairs at Oklahoma
Christian University)

During the last few years, Pakistan has also become the part of the
financial crisis, in which most of the firms and Companies were shutdown
due to lack of capital, in order to overcome the problem, Securities and
Exchange Commission (SEC) of Pakistan with partnership of UNDP,
provided technical and financial assistance to develop Corporate
Governance practices. This shows that if financial stability would be there,
14
Cadbury, Sir Adrian, "The Code of Best Practice", Report of the Committee on the Financial
Aspects of Corporate Governance, Gee and Co Ltd, 1992
15
The above stated quote is taken from the reference “A practioner’s guide to the financial services listing” by
Hector Saunts.

16
Hannigan, ‘Company Law’ , (2003), London, Lexis Nexis Butterworths at 298
17
The above extract was taken from the article written by Allion Garrett at website
http://internationalcorpgov.blogspot.com

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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
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they can easily aware their shareholders and stakeholders about the
activities of the firm to them18. ( NO REF)

If we see in the depth, the role of institutional investors arises when

conflict between shareholders and managers happened. To control such
conflicts, especially market and technical issues were evolved. In
addition, strong Companies were merging with the weaker one and
competitive manager’s conquest the poor managers. In this way the
capital market was not strong enough to invest anymore. Hence, in this
way shareholders and investors who have the large share in the Company
took the part in the strategic decisions 19. They start monitoring the output
and recital of the business. They also started to pore over the cost control
activities. Despite the fact that investors are not managing the firm but
they can make their proposals accepted by having more votes. This is the
most conflicting point for managers of Corporate nowadays as they are
not able to have entire control on the decisions they take to attain any
motive. For every decision they need to take suggestions from their
investors and than they are allowed to take the steps 20. This sometimes
disarrays the capabilities of the managers. Investors always propose the
ideas which are successful in long run. But against to this, Corporate has
to submit the report of all the activities which they are going to do. For
example, publically traded Companies in USA are required by the SEC to
submit annual report containing comprehensive details about the
performance. One more issue is highlighted nowadays due to the
influence of investors that is selling of shares in the open market due to
which the wealth of the Company starts shivering and demand also gets
up and down. This activity makes the Company disappointed. The higher
the shares float in the market, the more the Company will lose the
wealth. This is the influence of the investors’ freedom to buy and sell the
shares, they can play the large part in which the Company can be solvent
or stay in the listed Companies. Hence, it’s important for both Corporate
and investors to work mutually in order to gain and safeguard the rights
of the shareholders and earn more revenue. Such as the Cadbury
committee observe that the investors has a special responsibility to
ensure the strategies that are adopted by the Companies. Monks (2001)
identified ‘global investors’ as being21:

The public and private pension funds of the US, UK, Netherlands, Canada,
Australia and Japan. Through extrapolating the specific holding of a
number of the largest pension schemes, we conclude that the level of
ownership in virtually all publicly quoted Companies in the world is large
enough to permit the effective involvement of owners in the Governance
of those corporations. [NO REF]

18
Article available at http://corpgov.net/ accessed on 28 november 2010
19
Manual of Corporate Governance available at www.secp.gov.pk/dp/pdf/manual-CG.pdf cited on 27
november 2010
20
OECD (1999, 2004) Principles of Corporate Governance Paris: OECD)
21
Global investor available at www.ragm.com/oldfiles/inthenews/2001/corpgov_sept2001review.pdf
cited at 28 november 2010

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I would like to summarize the above topic in a way that institutional
investors are having a clear statement about the policies on activities and
discharging the responsibilities on it. Secondly they are monitoring the
performance on regular basis, communicating them and evaluating their
effectiveness’s. They can even highlight the issues if they see that
Management of the Company is failing to fulfill the obligations. These all
authorities of investors might create suffocation for Investee Company
but it can be beneficial if it really work out. Though it is hard shell for
managers to involve the investors but they have to accept the bitter truth
that the more the one will invest the more right he will get for their
involvement and the right to know how effectively their funds are being
used by the Management22.

INSTITUTIONAL INVESTORS AS ACTIVIST _CASE

STUDIES23
This is true that institutional investors are always acting as an activist.
They always sort the profile of the company first before investing. They
are also acting as relational advisor and try to safe companies from taking
decisions that can destroy the worth of the shares. Lets discuss the case
about the India based IT Services Company named “Satyam Computer
Services”. In the mid of December 2008, it announced acquisition of two
companies which was owned by their family members, named as Matyas
properties and Matyas infrastructure. As it was done before taking the
proper consent from their investors due to which the reactions of the
investors were unfavorable and they raised many questions on the
practices of Satyam and were continuously asking for the reason of the
acquisition. After the questions and adverse reactions of shareholders the
deal was termination and four famous boards of directors also resigned
from the company due to which company had faced the huge loss and
inflated. This shows that investors play major role in the surfacing of
global money flows, large border investments and acquisition, and in
taking decisions of the company whenever it is concern with the
investments, they have full rights of votes to change the company’s
decision and management can’t go against them as they are using the
capital which is invested by them. But the question raises, Did they took
right decision of not acquiring the company? Are always investors right?
We already had a glimpse on the influences and role of the investors
above but every time are they right by using their voting power? These all
questions can be answered if we peek on another case of Xerox
Corporation, which was showing poor performance in these years. SEC
charged the company and ordered to restate it. CalPERS 24, one of the
22
Monks, Robert A.G. and Minow, Nell, Corporate Governance (Blackwell 2004)
23
Case studies available at http://www.dealflow.com/conferences/ai_conference_agenda_10.cfm
accessed on 30 november 2010
24
CALPERS stand for The California Public Employees' Retirement System.

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 INSTITUTIONAL SHAREHOLDERS AND CORPORATE
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largest influentional pension funds in US added Xerox in the corporate
governance focus list of poor performing companies. When research, they
got to know that the company has same board of directors when they
were in financial crisis. These investors first suggested to change the
directors and stated that the roles of Chairman and CEO should be
independent, after taking the following steps, some positive effects were
seen. The answers of the questions are now very much clear with the
second case, that if there were no investors, no one was there to monitor
the performance of the company. These investors have following
principles which are already discussed above and they have to follow it in
order to control the cost and remind the companies their responsibilities
and targets in order to earn profit and benefit their shareholders. There is
one more case to discuss in which investors set the best example as
activist. In February 1996, Farnell Electronics- UK based electronic
company took the decision to acquire the company, Premier Industrial
Corporation of the US. It made the bid of 1.1 billion and there was an
action taken by the large institutional investors, who were doubtful that
the company is taking wrong decision25. They said that company is paying
too high to acquire Premier Industrial Corporation. Some investors took
the step by identifying themselves as disagreeing with the terms of the
bid. When they searched they got to know that farnell is having so much
debt to pay the deal26. Farnell to prove itself as the right decision maker,
tried to convince the investors by explaining them the merits of the deal
but they refused. In the end, the resolution was passed in which 77%
voted were in the favor of the Farnell 27and it acquired. After few years,
Farnell experienced problems and share price was also dropped. it shows
the fact that investors have always high research abilities and they
always go till depth whenever investee take any inappropriate decision
due to which it might damaging the share value.

TOOLS OF CORPORATE GOVERNANCE28{NO LINK

WITH THE QUESTION
It is important for the Corporate and investors to maintain healthy
relations in order to avoid financial crisis. For this they need to pursue the
following tools.

25
smerdon chapter 15 available at www.institutionalshareholderscommittee.org.uk (code on the
resposibilities of institutional investors) aaccessed on november 2009
26
Cohen, Lizabeth. Making a New Deal: Industrial Workers in Chicago, 1919-1939. New york:
Cambridge University Press, 1991.
27
Premier Farnell recently announced that its businesses located in Australia, China, India, Malaysia,
Singapore, and New Zealand will now be known as element14

28
Tools of corporate governance available at
http://www.ifc.org/ifcext/corporategovernance.nsf/Content/CG_Tools cited on 29 november 2010

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I. ONE TO ONE MEETINGS

It is important to have more communication between investors and

investee. Corporate Management should arrange the meetings for the
investors where they can define the objectives of the projects in order to
minimize the risk and have the voting power in their favor. If Companies
will involve and explain their motives to the investors, they will help them
to sell or underweight the shares of the Company to the brokers and
shareholders. The issues which will be discussed in the meetings will help
both of them to plan the strategies which will give benefit to them in the
future. Institutional investors seem beneficial in how to manage the
business and their views will also help the Management to gain the
reliability of the market.

II. VOTING

The right of the vote 29is the basic authority of each share owner, this is
particularly given to the board of Directors, representatives of
shareholders. The right of vote is basically the element of control given to
the investors. This voting helps the Management to step ahead in their
planning and decisions. Voting has fundamental importance and can be
used in positive and negative manner. This voting can even change the
direction of the strategy that Corporate wants to take but it can be
neglected with the power of voting.

III. FOCUS LISTS

Institutional investors are basically monitoring the performances of the

Companies. When they identify Companies not performing well or lacking
in some or other areas they keep their names in the focus list, which
indicates that Company needs the improvement in some area30.

IV. CORPORATE GOVERNANCE RATING SYSTEM

With the increasing value of Corporate Governance system around the

world, they are now ranked accordingly. It helps the shareholders to know
the ranking of the Companies. It is the powerful indicator that helps the
Company to attract the investors if they are on the top of the list 31. This
ranking also helps the investors to get the bench mark and they try to
improve their Companies also in order to reach the top. Let’s take an
example of P & G, whose market share is more than any other Company
around the world32. Each country is aware about the wealth and value of

29
Voting is the important tool of investors. For more details , Sebastian Sturm (2009)

30
solomon corporate governance and accountsbility ch5 page 115- 150
31
Low, Albert, 2008. "Conflict and Creativity at Work: Human Roots of Corporate Life, Sussex
Academic Press
32
James Freeman (January 12, 2010). Hitting the Boards. Wall Street Journal

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its shares and wants that the Company should have some investments in
their areas as well. It has rank in top 20 firms of the world. It creates
simple for investors as well to invest in their Companies without any fear
and with low risk.

ROLE OF AUDIT33
Auditing is the process of verification. External and internal auditing is
required to check the performance of the Company. Investors usually
required the audit reports of the Company every year at least to check
the performance of the Company and invest their money accordingly.
Audit helps the investors to place the Company on the correct ranking
system. Audits ensure the financial information by inspecting the financial
statements and state that either these are correct, sufficient and credible
or not. Hence, auditors should ensure report with the ethical values, as
it’s the backbone of the corporate governance. [ NO ANY LINK
WITH THE QUESTION]

CONCLUSION
In this topic, we have discussed that how Corporate Governance is now a
day’s controlled by the institutional investors. The chapter highlights that
Corporate always seek for the funds to enhance their operations both
vertically and horizontally. And on the other hand investors play the major
role in providing funds to them. According to the research, nowadays
institutional investors are acting as lender and borrower as well. They get
money from the clients and invest it into the profitable firms. They also
monitor corporate behavior and help to reduce the poor Management
skills of the firm in order to raise the wealth of the firm 34. They usually try
to increase the efficiency of corporate activities and minimize the risk
level. As Gourevitch and Shinn quoted:

"The investor coalition defined Corporate Governance in terms of

'meeting the challenge of financial globalization,' adherence to the OECD
Principles, fulfilling 'international standards of Governance in the global
competition for capital.'"35

It is true that the rise of institutional investors has brought up with

increase of professional diligence which has improved the stock market as
well. Perhaps, due to the strict monitoring and checking of the cost
control by investors of the firm, Management feel quite agitation, but they
need to understand the point that investors are investing their funds and
33
Cutting, Thomas (January 12, 2008). "How to Survive an Audit". PM Hut.
http://www.pmhut.com/how-to-survive-an-audit.
34
For a good overview of the different theoretical perspectives on corporate governance see Chapter
15 of Dignam, A and Lowry, J (2006) Company Law, Oxford University Press
35
The above extract is taken from the book “Political Power and Corporate Control” by
Peter Alexis Gourevitch, James Shinn (2005)

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GOVERNANCE
they have complete rights to monitor the usage the funds and take an
active part in all the projects and planning. They have the voting rights of
the Company and whatever strategies will be design, it should be
discussed and communicated to them as well. Even nowadays, if
institutions don’t like the CEO/Presidents, companies instead of golden
handshake36, forward their names for board of directors and their friend’s
associates vote them and make them the board of director. In this way
they are saving time in selection of director from shareholders and cut
their cost as well. Furthermore, institutional shareholders have right to
sell the shares, so they have to be careful with that as well in order to
maintain the wealth of the Company. I would like to end the topic with
fact that Corporate Governance now is the relationship between the
Management, Directors, shareholders and investors. Investors are
investing their funds and keep checking the internal control to earn the
profit and Management is accountable for attaining the objectives that
they defined before they take the steps. It’s true that:
37
"Corporate governance is not an abstract goal, but exists to serve
corporate purposes by providing a structure within which stockholders,
directors and management can pursue most effectively the objectives of
the corporation."

It explains that corporate governance 3839can’t achieve the goal

individually without the role of investors. It’s a dispute now and again that
whether it’s favorable for corporate to be interfered by institutional
investors or not? But as per the researches above, it clearly states that
institutional investors came into being when corporate were no more able
to handle to organizations and raise the funds. Institutional investors have
the powerful voice now in the investee companies. The evidence of better
corporate governance reflects on its performance and when its
performance is good than EPS and Market value of share will definitely be
rise. This will boost the reliance of the investors on the corporate
governance.

36
Skau, H.O (1992), A Study in Corporate Governance: Strategic and Tactic Regulation (200 p)
37
The extract is from US Business Round Table White Paper on Corporate Governance September (1997).

38
To know the role of banks in corporate governance, refer : “East Asia: the road to recovery” (1998)

39
“ Governance and risk: an analytical handbook for investor” by George Dallas (2004)

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REFERENCES

1. Tony Edwards, King's College University of London –

Corporate Governance Systems

Available at:

http://www.eurofound.europa.eu/eiro/2002/09/study/tn0209101s.
htm)

Accessed on (04-december-2010)

2. Unknown-Role of Institutional shareholders

Available at:

http://www.alancalderitGovernanceblog.com/2009/03/the-role-of-
institutional-shareholders/

Accessed on (04-december-2010)

3. Allison Garrett – institutional Services shareholder

Available at:

http://internationalcorpgov.blogspot.com/2006/04/institutional-
shareholder-services.html

Accessed on (05-December-2010)

4. Manya Srivardhan -Role of Institutional Investors in

Corporate Governance

Available at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1391803&

Accessed on (05-december-2010)

5. Unknown_ Institutional Investors

Available at:

http://www.economywatch.com/investment/institutional-
investors.html

Accessed on (07-december-2010)

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6. E. Philip Davis, Benn Steil

Institutional Investors – (2004-556 pages)

7. Theodar Baums

Institutional investors and Corporate Governance – (1994-695

pages)

8. Morten Balling, Elizabeth Hennessy, Richard O'Brien

Corporate Governance, Financial Markets and Global Convergence -

(1997-336 pages)

9. Jill Soloman

Corporate Governance and Accountability – (2010-440 pages)

10. Chris A Malin

Corporate Governance – (2007-316 pages)

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