Presentation on theme: "Asian Centre for Corporate Governance Best Practices for dealing with Non-Controlling Shareholders An Institutional Investor Perspective Presentation by."— Presentation transcript:
Asian Centre for Corporate Governance Best Practices for dealing with Non-Controlling Shareholders An Institutional Investor Perspective Presentation by M.K. Chouhan Chairman, Mahendra & Young Knowledge Foundation Vice Chairman, Global Advisory Board - Asian Centre for Corporate Governance Policy Dialogue jointly organised by MCA & OECD
Asian Centre for Corporate Governance Presentation will cover ä Main issues in dealing with Non-controlling shareholders ä Adequacy of Indian Corporate Governance Legislative & Regulatory framework. ä Some expectations / suggestions from FIIs ä Best practice from India – Case of HDFC
Asian Centre for Corporate Governance Main issues in dealing with Non-controlling Shareholders ä Equal voting rights (one share – one vote) ä Spirit with which the controlling shareholder exercise their voting right (Benefit of all share holders v/s own agenda ?) ä The disclosure protocol for related party transactions ä Poison Pills
Asian Centre for Corporate Governance Adequacy of Indian Legislative & Regulatory framework ä Legal framework based on common law ä Companies Act 1956 as amended ä Administered by Department of Company Affairs ä Enforce by Company Law Board (CLB) ä Listed Companies regulated by SEBI ä Latest Clause 49 listing agreement ä Corporate Governance rating by two agencies ICRA & CRISIL
Asian Centre for Corporate Governance Adequacy of Indian Legislative & Regulatory framework (+ves) ä Sections 397 and 398 of the Companies Act (Prevention of Oppression and Mismanagement) are adequate provisions to prevent any substantive abuse. ä Poison pills are banned by law. The SEBI Takeover Code has been successfully tested in over 25 hostile bids. ä SEBI’s initiative of a unique client code for each investor
Asian Centre for Corporate Governance Adequacy of Indian Legislative & Regulatory framework (Areas of improvement) ä Enforcement and implementation of laws and regulations remain important challenges. ä Certainty of punishment is more important than severity of it The provision Section 372A; dealing with the selling or leasing of major assets should be further refined to avoid any abuse. ä The legal framework and stock exchange rules should provide for full disclosure of shareholder agreements. ä Consider strengthening regulators’ enforcement power to offset backlog and delays of court procedures. ä Successfully prosecute one insider trading case to enhance perception of market integrity.
Asian Centre for Corporate Governance Indian Legislative & Regulatory framework contd… The current institutional framework places the oversight of listed companies ä Partly with the Department of Company Affairs (DCA), ä Partly with the Securities and Exchange Bard of India (SEBI) ä Partly with the Stock exchanges. ä This fragmented structure gives rise to regulatory arbitrage and weakens enforcement. Source : REPORT ON THE OBSERVANCE OF STANDARDS AND CODES (ROSC). World Bank survey of India's corporate governance institutions and practices
Asian Centre for Corporate Governance Some expectations /suggestions by FIIs ä Related party transactions over a certain size should be approved - preferably in advance, in general meeting by a majority of the minority shareholders (Practical ?). ä Controlling shareholder should be, disenfranchised for this vote. (Practical ?).
Asian Centre for Corporate Governance Some expectations /suggestions by FIIs contd….. ä Audit committee comprising of majority of Independent Directors, should play a role in assessing where the materiality level should be pitched. ä Materiality bar for related party disclosures must be set at a sensible level (neither too high, nor too low )
Asian Centre for Corporate Governance Best Practice – HDFC Housing Development Finance Corporation ä 78 per cent of HDFC’s shareholding is held through FII / FDI. ä Keeps investors informed on a regular & on-going basis. ä Senior management spends substantial time In engaging with investors /FIIs. ä One-on-one meetings with investors rather than having large gatherings with several investors. ä Developing long-term relationships with investors through more focused and meaningful discussions.
Asian Centre for Corporate Governance Conclusion Make boards truly independent ä Regulatory or legal remedies can at best mitigate, can not eliminate abuse of power against Non-controlling shareholders. The first line of defense for investors and a key mechanism for ensuring that an issuer’s disclosure statements are accurate is the company’s board of directors Sherman Boone – Asst Director office of the International Affairs, SEC, Washington DC At ACCG conference Mumbai Dec 21 st 06