CORPORATE GOVERNANCE: INVESTORS GATHER HEFT

Institutional investors would generally abstain from voting on issues that could upset promoters, who would then force their way through at board meetings. With institutions now owning close to 35% of the market and promoter holding down to 54%, the power equation has changed.

- Amit Tandon

THE ROLE OF INSTITUTIONAL investors in Indian corporate governance is evolving. Starting from being providers of capital, their role has extended. Today, as shareholders, they realize that they are more than purveyors of capital and that they, in turn, have a fiduciary responsibility to their investors to engage with their portfolio companies. Taking on this responsibility has helped outside shareholders declare when needed, their displeasure with promoter control and management-proposed resolutions from which minority investors do not stand to gain. In India, this dynamic must continue to grow and evolve to create an appropriate balance in the corporate governance hierarchy.

In American and British companies, management and ownership generally tend to be separated. As a result, the dialogue between a company’s shareholders and its management is through its board. The board is expected to hire the ‘right’ CEO and senior management, fire the wrong leader, ensure compensation is fair, and provide strategic direction to the company.