1. Ownership, Control and Compensation

2. Who is a shareholder Owner Beneficiary Risk bearer Decision maker
(internal control).

3. Types of Shares
Ordinary shares
Preference Shares
Other types

4. Features of Ordinary Shares
Permanency
No nominal cost to the company
Residual claim on profits
Residual claim on assets
Voting rights
Cumulative voting rights
Right of purchasing new shares

5. Classification of Equity shareholders
Internal (invest to own and run)
Corporate shareholders (holding companies)
Families, groups of friends
External (invest only for a return)
Individuals
Institutional investors.

6. Internal Shareholders
Controlling shareholders
Majority not a necessity
Scene in the West
Situation in Pakistan

7. External Shareholders
Generally not on the board.
Lack of unity
Lack of interest
Therefore, lack of influence

8. Small Private Shareholders
Individuals
Only interest in share price change
No long term interest
Only a little interest in earnings
Reactive buyers/sellers
Big losers when things go bad
No influence over Boards

9. Large Private Shareholders
Individuals (but may be acting through trusts, private limited companies, etc.)
Have long term interest in the company
May have great influence on the company
May provide bulk of executive directors
In Pakistan, these people are the focus of corporate governance endeavors.

10. Corporate Shareholders
Holding companies
Multinationals
Groups

11. Institutional Investors
Mutual Funds
Managed Funds
Pension Funds
Life Insurance companies
Banks
In UK, it is believed that institutional shareholders hold, on an overall basis, a majority of shares of all listed companies.

12. Institutional Investors Perspective
Long term interest in share value growth.
Current returns are still important.
Ability to evaluate performance.
Power and ability to influence Boards.
But do they have the time to pay attention to every single company.
Monitoring systems for danger signals.

13. Role of II’s Capability and Capacity to influence.
Dialogue with directors
Regular evaluation of financial reports
Flag off danger signals
Sharing info with other stakeholders
Judicious use of Vote
Could / should seek representation on board

14. Some interesting facts
10% of EDs in European companies do not know who their top 50 shareholders are.
25% of their CEOs had met only half of their top 50 shareholders
In Pakistan, most listed companies have majority held by a family or group and they do not seem to attach any importance to any other shareholder.

15. Shareholders’ Expectations from a Company
Accountability of board members
Transparency in all transactions
Company interest over self interest
Effective and efficient management leading to good returns and capital growth.
Fair share of real profits.

16. Shareholders’ Hold on Board
Shareholders must approve:
Class 1 transactions
Large size relative to size of the company
Related party transactions
Financial statements
Audit report is for shareholders
Directors remuneration
Shareholders elect and can remove directors.

17. Tools of Control Defined Procedures CONTROLS
Only one way of doing an action
Segregation of duties (internal check)
CONTROLS
Physical (cash in safe, maintenance)
Managerial (e.g. budgets, limits, approvals, etc.)
Supervision
Accounting and auditing checks
Selection of right personnel

18. Communication between Shareholders & Board
Direction: One way reporting or Two way communication
Nature: Formal or Informal communication
Scope: All or some shareholders
Frequency: Regular or irregular, need based.

19. Communication Instruments
Statutory reports
Chairman’s report (OFR)
Compliance reports
Newsletters, circulars
Meetings with major shareholders
Correspondence

20. Shareholders Activism
Refers to stand taken by shareholders against recommendations of the Board.
Do they have adequate rights or power?
Result less important than show of dissent.
Can work only if institutional investors participate.
Do institutional investors have a duty to communicate with other shareholders?

21. Shareholders’ Activism - 2
If institutional investors join hands with smaller shareholders:
Monitoring of board performance
Direct intervention
Regular evaluation and sharing of analysis
But remember, institutional investor organizations are all run by managers so they have affinity for managers.

22. Areas of Dissent Re-election of directors Re-appointment of auditors
Approval of directors’ remuneration
Approval of annual accounts
Dividend recommendations
Changes in share capital
Other approvals