INSTITUTIONAL INVESTORS, GOVERNANCE

ORGANIZATIONS AND LEGAL INITIATIVES

CHAPTER 8
• CORPORATE GOVERNANCE is a process that aims
to allocate corporate resources in a manner that
maximizes value for all stakeholders-
shareholders, investors, employees, customers,
suppliers, environment and the community at
large and holds those at the helm to account by
evaluating their decisions on transparency,
inclusivity, equity and responsibility.
• The WORLD BANK defines GOVERNANCE as the
exercise of political authority and the use of
institutional resources to manage society’s
problems and affairs.
• CORPORATE GOVERNANCE is the set of processes, customs,
policies, laws and institutions affecting the way a corporation is
directed, administered or controlled.
• CORPORATE GOVERNANCE also includes the relationships among
the many stakeholders involved and the goals for which the
corporation is governed.

• The main EXTERNAL STAEKHOLDER GROUPS ARE:

1. Shareholders
2. Debt holders
3. Trade creditor
4. Suppliers
5. Customers & communities

 INTERNAL STAKEHOLDERS are:

1. Board of directors,
2. Executives
3. Other employees
• CORPORATIONS are created as legal persons by
the laws and regulations of a particular
jurisdiction.
• CORPORATION’S LEGAL PERSON STATUS is
fundamental to all jurisdictions and is conferred
by statute. This allows the entity to hold
property in its own right without reference to
any particular real person.
• The statutory granting of corporate existence may
arise to crate a specific corporation, which was
only method prior to the 19th century.
 INSTITUTIONAL INVESTORS
• Can be described as organizations that buy and
sell securities in large volume of share quantities
or amounts that made them qualify for
preferential treatment and lower commission
cuts.
• Ex. SSS (social security system) GSIS (government
service insurance system and the AFSLAI (armed
forces savings and loan association incorporated

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• Typical investors included are; banks, insurance
companies, retirement or pension funds, hedge
funds, investment advisors and mutual funds.
• Their role in the economy is to act as highly
specialized investors whose competencies are
focused on taking care of investments on behalf
of others.
• The good thing about institutional investors is
that they manage aggregated sums of money
and have these funds invested in different
prospects which are appropriate, ideal and
favorable to each of the contributor under given
circumstances.
• INVESTORS are entitled to vote on their shareholdings.
• With their significant holdings and war chest at their
disposal, their power to make a “ to buy” or “ to sell”
order of the shares in the investee corporation will
certainly exert influence on the way the investee treats the
institutional investor and how it conducts its business.
 TYPE OF INSTITUTIONAL INVESTORS
1. HEDGE FUND
 Is an investment account open to a narrow range of
investors that take on a wide range of investment
and trading activities in addition to traditional long-
term investment funds.
 Every hedge funds has its own investment approach
that determines the category of investments and the
methods of investment it embarks on.
 Hedge funds, invest in a wide range of investments
including equity and debt securities and
commodities. video
• MEMBERSHIP, hedge funds are available to
sophisticated or wealthy investors who meet
certain criteria.
• Hedge funds are exempt from many regulations that
rules ordinary investment funds.
• Exemption typically include:
1. Limitations on short selling
2. The application of derivatives and leverage, fee
structures and on the liquidity of concentration in
the fund.
 characteristics:
1. Lighter guidelines and
2. the existence of performance fees
 2. INVESTMENT BANKING
• Refers to a financial institution that helps out corporations
and governments in raising capital by underwriting and
acting as the agent in the issuance of both equity and debt
securities.
• An investment bank also assists companies involved in
business combinations like MERGERS, ACQUISITIONS &
OTHER DIVERSIFICATION EFFORT.
• auxiliary services:
1. marketing making and the trading of derivatives,
2. fixed income instruments like bonds and other bills, foreign
exchange transactions, commodity and equity securities.
 characteristic:
1. It does not accept deposit unlike commercial banks and retail
banks
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 3. Investment trust
• Refers to investors’ money being pooled together
from the sale of a fixed number of shares a TRUST
ISSUES in its first offering.
• The board will hand over responsibility to a
professional fund manager to invest this money in
the stocks and shares of a wide range of companies.
• A typical investment endeavor where the entity’s
money is invested in several placements more than
most people could realistically invest in themselves
• Investment trust has no employees, only a board of
directors comprising only non-executive directors.
 4. MUTUAL FUNDS
• Another institutional investor that is professionally managed
type of collective investment scheme that pools money from
many investors and invests typically in investment securities
which includes, stocks, bonds, short-term money market
instruments, other mutual funds and securities, including
commodities such as precious metals.
• This fund is managed by a fund manager that buys and sells
instruments and commodities from the fund’s investments in
accordance with the fund’s investment objective.
• This funds will be are overseen by a board of directors or
trustees, the body taking charge with ensuring that the funds
is managed appropriately by its investment adviser and other
service organizations and dealers, all for the best interest of
the fund’s investors.
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 5.PENSION FUND
• Is a collection of assets forming a separate legal
entity that came into being from the
contributions to a pension plan for the exclusive
purpose of financing pension plan benefits.
• Pension funds are important shareholders of
listed and private companies because pension
fund is considered as one of the biggest
investors in the stock market, any movement of a
certain pension fund from one investment to
another can be felt by the entire listed
community.
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 6. CROSS LISTING
• Refers to listing of equity shares of a company in
more than one stock exchange in different
countries.
• Used to refer to the listing of a company on more
than one stock exchange in same country. Here in the
Philippines , we have one (from the original manila
stock exchange and Makati stock exchange) stock
exchange which is the PHILIPPINE STOCK EXCHANGE
INC. (PSE).
• U.S companies may choose to cross-list their shares
on different Asian or European stock exchanges as a
strategy to address U.S dollar positioning against
major and dominant global currencies.
• OBJECTIVES FOR CROSS-LISTING

1. TO IMPROVE LIQUIDITY
 By cross-listing company can improve the liquidity of
its existing shares at the same time, find and support
a liquid secondary market for new equity issues in
foreign markets.
 Firms from countries with small illiquid capital
market often outgrow those markets and are forced
to raise new equity abroad.
 In order to maximize liquidity, the firm ideally should
cross-list and issue equity in more liquid ,markets in
other countries or regions.
 The idea still remain, the more source for investors’
money, the better for the company.
2. TO INCREASE FIRM’S VISIBILITY AND
ACCEPTANCE
Cross-listing increases the firm’s visibility and
acceptance to its customers, suppliers, creditors,
and host government.
Cross listing in the foreign markets gives the
company the chance:
1. to enhance corporate image,
2. to expose and advertise trademarks and
products,
3. to get better local press attention and
4. to become more familiar with the financial
community.
3. TO INCREASE ITS SHARE PRICE
Another subtle reason in cross-listing is trying to
increase the company’s share price by defeating
mispricing in a segmented and illiquid home
capital market.
In more liquid marker or region where share are
cross—listed, not only that the company has
fresh source of funds but also the company’s
share marketability is enhanced.
4. TO SUPPORT TAKEOVER BIDS
• Cross-listing can also be view as one of the initial
steps in establishing a secondary market for shares
to be used to acquire other firms in the host
countries or market.
• In a takeover or business acquisition scenario for that
matter, companies offer their shares as partial
payment and it is significantly more attractive if
those shares have a liquid secondary market in other
regions.
• High liquidity level in the market can be noted when
the firm can issue new securities without any
noticeable traces of depression in terms of market
price resulting from the new issuance
5. TO SUPPORT SHARE AND OPTIONS PLAN
Create a secondary market for shares that can be
used to compensate local management and
employees in foreign subsidiaries.
Ex. If a company has foreign subsidiaries and
wishes to use stock options and share purchase
compensation plans for local management and
employees, cross listing should reduce
transaction and foreign exchange costs for the
local beneficiaries.
 ROLE OF INSTITUTIONAL INVESTORS IN GOVERNANCE
1. MONITORING
Close monitoring of corporate performance from
institutional investors is expected considering
that investments from these type of investors
usually involve large amounts of money.
Another reason for close monitoring is that the
profiles and expectations of these investors are
different from the ordinary investors.
From the cost benefit standpoint, the cost of
monitoring can be easily off set by the expected
positive returns.
2. DRIVER OF AGENT’S PERFORMANCE
When the share of investment by institutional
investor is so huge that the balance sheet figure
will significantly suffer without its investment,
agents in the corporation will at all times, be in
pursuit of pleasing its principal in terms of
performance.
Being a valued investor can, most of the time,
command better performance knowing that such
an amount of money can be pulled out by the
investor anytime and have it invested in another
field of interest by the investor or worse, be
invested in a competitor-investee.
3. GOOD ACTIVIST
 Institutional investors
especially those whose
investment is significant
enough to earn a board seat
can be the fearless fiscalizers
on corporate policies.
 They are the representatives
who can be the voice of the
investing institutions in the
board.
 They can easily ask questions
on matters affecting the
corporation and of course,
they have access to the
records as stockholders.
4. PRINCIPAL AGENT ROLE (DUALITY)
 When an investor has already a huge influence in the
corporation, he can have the power to elect the
officers for the investee corporation.
 One scenario is an investor earning a board seat may
eventually be elected as the chief officer (CEO).
 In this case, the institutional investor is I the process
performing a dual roles – the role of being the
principal (shareholder) and an agent at the same
time (board member and/or CEO).
 This unique capability of institutional investors adds
security and protection for their investments in the
company.
5. DETERRENT TO OPPORTUNISM
 There are a lot of challenges to consider when one
engages in activities for purpose of deterring
opportunism.
 One needs something to counter self-interested
behavior of the agents.
 One of the best antidotes to opportunism is to have
a voice in the board.
 In corporate world, the level of audibility of the
investor’s voice may be directly proportionate to the
level of investment he is representing.
 Institutional investor’s representative to the board
will serve as watchdog.
 Opportunistic attitudes of the other members of the
board will therefore be in check.
 CORPORATE GOVERNANCE ORGANIZATIONS
• INTERNATIONAL CHAMBER OF COMMERCE (ICC)
 An organization focusing on promoting growth and
prosperity, spreading business expertise and
advocate for international business.
 This organization is consider as the voice of the world
business championing the global economy as a force
for economic growth, job creation and prosperity.
 ICC – the worlds only truly global business
organization, responds by being more assertive in
expressing business views.
 ICC activities for open trade and the market economy
system, business self-regulation, fighting corruption
or combating commercial crime. video
• INTERNATIONAL CORPORATE GOVERNANCE
NETWORK (ICGN)
An investor-led organization of governance
professionals, ICGN’s mission is to inspire and
promote effective standards of corporate
governance to advance efficient markets and
economies world-wide.
ICGN members are largely institutional investors
who collectively represent funds under
management.
Breadth and expertise of ICGN members from
investment, business, the professions and policy
making extends across global capital markets.
• ASIAN DEVELOPMENT BANK (ADP)
 ADB – is an international development finance
institution whose mission is to help its developing
member countries reduce poverty and improve the
quality of life of their people.
 ADB- Headquarter in Manila, established in 1966.
 ADB – owned and financed by its 67 members, of
which 48 are form the region and 19 are form other
parts of the globe.
 ADB – main partners are government, private sector,
non-government organizations, development
agencies, community-based organizations and
foundations.
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• Under strategy 2020, a long term strategic
framework adopted in 2008, ADB will follow
three complementary strategic agendas: inclusive
growth, environmentally sustainable growth, and
regional integration.
• In pursuing its vision, ADB’s main instruments
comprise loans, technical assistance, grants,
advice and knowledge.
• ADB provides direct assistance to private
enterprises of developing countries through
equity investments, guarantees and loans.
• Triple A credit rating helps mobilize funds for
development.
• INTERNATIONAL FEDERATION OF ACCOUNTANTS
IFAC is the global organization for the
accountancy profession.
It works with its 159 members and associates in
1124 countries and jurisdictions to protect the
public interest by encouraging high quality
practices by the world’s accountants.
IFAC members and associates, which are primarily
national professional accountancy bodies,
represent 2.5 million accountants employed in
public practice, industry and commerce,
government and academe.
• UNITED NATIONS CONFERENCE ON TRADE AND
DEVELOPMENT
Established in 1964, UNCTAD promotes the
development-friendly integration of developing
countries into the world economy.
UNCTAD has progressively evolved into an
authoritative knowledge-based institution whose
work aims to help share current policy debates
and thinking on development, with a particular
focus on ensuring that domestic policies and
international action are mutually supportive in
bringing about sustainable development.
• The organization works to fulfill this mandate by
carrying out three key functions:
1. It functions as a forum for inter-governmental
deliberations, supported by discussions with
experts and exchanges of experience, aimed at
consensus building.
2. It undertakes research policy analysis and data
collection for the debates of government
representatives and experts.
3. It provides technical assistance tailored to the
specific requirements of developing countries, with
special attention to the needs of the least
developed countries and of economies in
transaction. When appropriate, UNCTAD cooperates
with other organizations and donor countries in the
delivery of technical assistance.
• In performing its functions, the secretariat works
together with member governments and interacts
with organizations of the United Nations system and
regional commissions, as well as with government
institutions, non-governmental organizations, the
private sector, including trade and industry
associations, research institutes and universities
worldwide.
• ORGANIZATION FOR ECONOMIC CO-OPERATION AND
DEVELOPMENT (OECD)
• OECD brings together the governments of countries
committed to democracy and the market economy from
around the world to:
1. Support sustainable economic growth
2. Boost employment
3. Raise living standards
4. Maintain financial stability
5. Assist other countries economic development
6. Contribute growth in world trade
 The organization provides a setting where governments
compare policy experiences, seek answers to common
problems, identify good practices and coordinate domestic
and international polices.
 INVESTMENT PROMOTION AND FACILITATION
• Specific measures to promote and facilitate
investments can be successful if they take place
within the context of, and not substitute for, broader
policies for improving thee investment environment.
• As a country establishes a sound investment
environment, investment promotion and facilitation
measures can be useful instruments to attract new
investors, especially in smaller, more remote markets
or in those countries with a recent history of
macroeconomic and political instability.
• Effective investment promotion also serves to
highlight profitable investment opportunities, by
identifying local partners and by raising the positive
image of the economy.
QUESTION:

HAS THE GOVERNMENT ESTBLISHED AN

INVESTMENT PROMOTION AGENCY (IPA)? TO
WHAT EXTENT HAS THE STRUCTURE, MISSION,
AND LEGAL STATUS OF THE IPA BEEN INFORMED
BY AND BENCHMARKED AGAINST
INTERNAITONAL GOOD PRACTICES?
• The rapid growth in the number of IpA’s reflects the
growing importance that governments ascribe to
invest promotion.
• Centralizing foreign investment promotion and
facilitation activities, such as information
dissemination and policy advocacy, within a single
agency can be more cost effective and provides an
opportunity to present a coherent impression of a
country’s attractiveness to investors.
• The growth in the number of IPAs also means that a
rich body of experience has been developed with
respect to different approaches to investment
promotion agencies and across countries at different
levels of development.
• QUESTION

• TO WHAT EXTENT DOES THE IPA PROMOTE AND

MAINTAIN DIALOGUE MECHANISMS WITH
INVESTORS? DOES THE GOVERNMENT CONSULT
WITH THE IPA ON MATTERS HAVING AN IMPACT
ON INVESTMENT?
• Investment promotion agencies can play an
important role in facilitating effective communication
between investors and the government.
• As the interlocutor between the government and the
foreign investor, IPA IS OFTEN THE MAIN SOURCE OF
FEEDBACK TO GOVERNMENT POLICYMAKERS ON
THE CONVERNS OF INVESTORS.
• Conversely, through its regular contact with
government and the relevant government agencies,
the IPA can be an effective communication channel
for investors on government activities having an
impact on the investment environment.
• QUESTION

• TO WHAT EXTENT HAS THE GOVERNMENT TAKEN

ADVANTAGE OF INFORMATION EXCHANGE
NETWROKS FOR PROMOTING INVESTMENT?
• One of the roles of IPA’s is to facilitate the recognition
of potential investment opportunities by promoting
partnerships between domestic and foreign
enterprises.
• A number of initiatives exist to help governments and
IPA’s in their linkage promotion efforts.
• Ex. UNIDO subcontracting and partnership exchange
(SPXs) act as technical information, promotion and
matchmaking centers for industrial subcontracting.
• The SPX Network currently provides detailed,
standardized, updated and certified data on
approximately 20, 000 manufacturing companies
worldwide, thereby favoring the establishment of
partnerships between contractors, suppliers and
subcontractors.
• To date, more than 60 SPXs have been set up with
UNIDO’s assistance in more than 30 countries.
 SARBANES –OXLEY ACT OF 2002
• METRICS-BASED CORPORATE GOVERNANCE

• SARBANES-OXLEY ACT seeks to lay the ground

for a culture of proactive management of risks
going beyond the reactive approach that has
been common so far.
• In order to avoid the embarrassment of unmet
expectations, companies took resources to
creative accounting to patch up their financial
statements.
• SARBANES-OXLEY ACT ensures that the senior
executives have greater responsibility as well as
the means to meet them. Thus, the directors of
boards of companies will have direct access to
company information and their committees will
have independent oversight over important
matters such as executive compensation,
selection of auditors and government policy.
• In turn the directors will have greater exposure
to liability for any negligence in the
management of companies.
• SARBANES-OXLEY ACT provides for checks and
balances that were not available in the past.
• Whistle blowers will now have greater
protection of the law as well as the opportunity
to report fraud in their companies.
• Similarly, the auditors of companies have to
report to the independent audit committees.
• SARBANES-OXLEY ACT seeks to make companies
more transparent and vigilant by requiring the
reporting of all their operational risks as well as the
internal controls put in place to monitor them.
• Any material change in the monitoring of risks has to
be repotted to the shareholders in real time.
• SARBANES-OXLEY ACT seeks to focus the attention
of companies on identifying their companies by
anticipating risks, all across the enterprise, and to
take pre-emptive action to guard against the damage
that they could wreak.
• The bedrock of this model of governance would be
the business intelligence infrastructure that will help
companies to receive information.
• This information will be more widely shared among
the executives, shareholders and the board of
directors.
• All the stakeholders in the company will have both
the opportunity and the resources to put all their
minds together to effectively manage their
companies.
 BOARD OF DIRECTORS
• Are expected to play much more active roles in
the interest of shareholders.
• The NEW YORK STOCK EXCHANGE, consistent
with the provisions of the SARBANES-OXLEY ACT,
expects that non-management directors should
hold regular sessions without the participation of
the management or any other person with a
material relationship with it.
• The regular meetings of the boards are sought
for brainstorming without being biased by the
concerns of the management or its influence.
 DISCLOSURES
• The rampant misrepresentation of the financial situation of
companies, especially in the technology industry, by the use
of pro-forma financial statements is not possible now without
additional disclosures to compare them with GAAP consistent
accounting.
• Under Section 401 (b) of the Sarbanes-oxley act, it would not
be possible for pro-forma statements to omit any material
fact which misrepresents the fair or true position of the
company.
• The SEC is moving towards real time disclosures so that each
investor has prompt access to information, under Section 409
that will have a material impact on the company.
• The filling deadlines for quarterly and annual reports have
been accelerated by a third.
• The SEC also identified items that need to be disclosed in real
time.
 FRAUD
• The premise for fraud control is that
managements frequently exploit weaknesses in
internal controls for their dubious purposes.
• PCOAB’s Auditing standard 2, requires that the
assessment of internal controls take into account
the susceptibility of the company’s processes to
fraud.
• The internal controls should be able to prevent,
deter and detect fraud.
 GOVERNANCE POLICIES
• SARBANES-OXLEY ACT seeks to encourage explicit
discussion of the corporate governance policies that
will se a direction for the board and the management.
• The new york exchange has the operative rules which
require that the boards of companies set up a
governance committee which will spell out the
governance principles which will be used to evaluate
the board and the management.
 EXECUTIVE COMPENSATION
• In order to check fraud from earnings
management by senior executives, Section 304
of the Sarbanes-Oxley Act, requires a company
which restates its financial statements due to
material noncompliance, misconduct or with
any financial reporting requirement, the CEO &
CFO must reimburse the company for bonus or
other incentive-based or equity-based
compensation received during the 12-month
period following issuance of the financial
statements and profits realized from the sale of
equity during the same period.
 PROTECTION OF WHISTLEBLOWERS
• SARBANES-OXLEY has provided added protection to
whistle-blowers who can establish a prima facie case of
retaliation when they report malfeasance in the
company.
• The instrument for achieving this goal is the change in
the burden of proof rules which are now in favor of
employees.
• If they submit evidence that the retaliation was a
contributing factor to the adverse employment action,
a presumption of retaliation is created.
• In order to defeat this presumption, the employer must
establish, by clear and convincing evidence, that it
would have taken the same action with respect to the
employee, regardless of the alleged protected activity.
 COMPENSATION COMMITTEES
• SARBANES-OXLEY does not explicitly spell out rules
governing compensation in order not to restrict the
freedom of companies to make their decisions.
• The New York Stock Exchange’s governance rules
require the boards to form independent compensation
committees which have the authority to decide on
compensation policies consistent with the business
goals of their companies.
• They also required to make decisions on the incentive
component of compensation and ensure that they
are effective in achieving the performance goals of the
company.
• Compensation committees are also expected to seek
advice from compensation consultants about
executive pay.
 AUDIT COMMITTEES
• SARBANES-OXLEY has sought to govern auditors
at the board level in order to avoid the conflicts
that can happen with the management.
• These audit committees are composed of
directors and have the responsibility to ensure
that the financial statements of the company
and the internal controls are consistent with the
regulatory policy.
• The audit committees are also required to
discuss the company’s exposure to risk and the
means to manage them.
 DEPARTURES FROM THE PAST
• SARBANES-OXLEY recognize that the:
1. mode of compensation,
2. an increasing share of equity and
3. equity options in the packages that executives received
was responsible for the frauds that were committed at several
large companies.
• This kind of compensation created incentives for furging the
balance sheet and the income statement to engineer stock
price increases.
• Academic literature finds significant correlations between a
high component of equity compensation and symptoms of
fraud such as:
1. accounting restatements,
2. high proportions of accruals,
3. capitalization of expenses, etc.
• Governance bodies are concerned that executive
compensation does not reflect the performance of
the chief executive.
• Equity compensation is a means to address the
agency issue by tying the interests of owners and
managers, the executives undeservedly also benefit
from the over all increase in market indices unrelated
to the financial performance of the company.
• Severance pay and retirement benefits and a host of
other fees paid to former executives are not related
to performance.
• SARBANES-OXLEY has not specifically mandate any
rule for compensation for executives, it does vest
authority on compensation committees to decide on
executive pay is consistent with the overall interest
of the company.
 ENTERPRISE RISK MANAGEMENT
• CORPORATIONS are rethinking their strategies towards the
management of risk in the future to effectively comply with
the Sarbanes-Oxley Act.
• Companies are implementing enterprise risk management
systems and employing chief risk officers to govern their
strategies for risk across the enterprise.
• Companies do not any longer want to betaken by surprise and
incur losses as they are hit by unexpected events.
• They now realize that their ability to manage risks depends
on:
1. anticipating risks,
2. detecting their risks more effectively by looking at them in
all its inter-dependence and
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3. fortifying their systems to withstand shocks.
• Operational risks SUCH AS FRAUD IN THE COMPANY, CAN
CREATE A LIQUIDITY CRISIS FOR THE COMPANY
• Business risk, such as loss of intellectual property from
outsourcing of business processes overseas, could lead to
bankruptcy of a company.
• The vulnerability of companies has increased with the
growing reliance on sophisticated financial instruments, an
extended enterprise and information technologies.
• Companies realize that they need to create a culture in
which employees at all levels respond to unnoticed sources
of risk in any corner of the enterprise and communicate it
to the rest of the organization.
• This is facilitated by enterprise risk dashboards which help
to communicate potential threats to the company and
galvanize organizations to react rapidly before a crisis goes
out of control. video
CHALLENGES CONFRONTING INSTITUTIONAL INVESTORS
• The principles of corporate governance embrace the
underlying assumption that shareholders can best
look after their own interests provided they have
sufficient rights and access to information.
• The increased presence of large institutional
investors in the last decade fostered the expectation
that a new breed of highly skilled and well-resourced
professional shareholders would make informed use
of their rights, promoting good corporate
governance in companies in which they invest in.
• These principles are reflected to cover disclosure of
voting policies, managing conflicts of interest and
cooperation between investors
• INSTITUTIONAL INVESTORS are financial
institutions that accept funds from third parties
for investment in their own name but on such
parties’ behalf. They include:
a. pension funds,
b. mutual funds, and
c. insurance companies.
• With the goal of optimizing returns for targeted
levels of risks, as well as for prudential regulation,
institutional investors diversify investment into
large portfolios, many of them having
investments in thousand of companies.
• Key problem:
1. Domestic investors do not vote their foreign equity
2. Becoming short term investors or promoting short
term thinking by investee companies

 Private sector – enhancing collaboration among

institutional investors, as establishing industry
associations to share the costs of monitoring and
voting have shown positive results.
 PUBLIC POLICY SIDE – prudential regulations
excessively limit holdings by institutional investors in
individual companies and restrictions on incentive
schemes may also change their behavior in an
unintended manner.
• The effectiveness and credibility of the entire
corporate governance system and company
oversight will to a large extent depend on
institutional investors that can make informed
use of their shareholder rights and effectively
exercise their ownership functions in companies
in which they invest.