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Chapter 6

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