INVESTOR PERSPECTIVES ON CORPORATE GOVERNANCE

CIS Corporate Governance Conference

Johannesburg, South AfricaSeptember 10-11, 2009

Presentation byN K Jain, Secretary & CEO

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Investor is the prime entity that commits its resources and vests its financial interests in an enterprise.

Investors in order of remoteness to proximity to management / control of the enterprise, are as under-

Retail/household investorsCommercial banksFunds (Mutual, pension or hedge)Financial institutionsInvestment banksPrivate EquityJ V PartnerPromoter

Investment objectives, risk appetite, investment preferences and diversified range of investments.

Their roles are also not exclusive but invariably superimposed.

In addition to being investors they are also simultaneously consumers, employees, ordinary citizens, competitors, regulators, government, suppliers/vendors.

Investors may be enterprise managers/controllers or those in charge of governance of the enterprise.

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Perspectives, are defined as Expectations

• liquidity• capital appreciation of investment• market relevant yields• Market and social reputation of the

investment. Perspective implies …......

• TRUST• governance to be ethical, competent,

effective and consistent

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Misgovernance- Investors’ loss

World ComThe class action litigation filed by World Com shareholders resulted in a US$ 6 Billion payout.

EnronShareholders of Enron got a pay out of US$ 7 Billion.

SatyamThe Indian IT Company Satyam mis-governance has over dozen class action suits filed by ADR holders pending against it in the US.

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The problem of how to make companies accountable has been around ever since the public limited company was invented in the 19th century, for the first time separating the owners of firms from the managers who run them…

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The California Public Employees’ Retirement System (CalPERS)The California Public Employees’ Retirement System (CalPERS)

Hermes Investment Management Limited (Hermes)Hermes Investment Management Limited (Hermes)

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Investor Activism – A Major Contributory to Good Governance

Investor activism led to adoption of Good Corporate Governance norms.

A number of Fund Investors and financial institutions adopted their own principles of Corporate Governance like CalPERS, Hermes UK .

They have also contributed to the development of Best Practices and principles adopted by national, international and inter governmental organisations such as World Bank, OECD, International Corporate governance Network etc.

ICGN framework advocates that Shareowners must be treated equitably, their exercise of rights must be facilitated and rights of all investors, including minority and foreign shareowners must be protected.

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Up to 80 % of investors willing to pay a premium for a well- governed company;Governance is as important as reported financial performance for investors.Several dimensions of governance influence investors’ decision making. Around 60 per cent of investors avoid certain corporations due to lack of sound governance principles

Investor Perspective – Road Map

From a global perspective, McKinsey identified six themes to be important:

•Rapid extension of governance codes worldwide.•Increased focus on board professionalism•Selective redesign of corporate leadership roles.•Re-assessment of corporate reporting needs.•More intensive external scrutiny of governance .•Increased   attention   to   corporations'   impact on society.

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Epilogue

Governance needs to be stakeholders centric. Need for focussed approach towards investor perspective in setting up of Governance Standards Corporations need to be more transparent, honest and truthful to the InvestorsRegulators also have an added responsibility & challenge to play a role of Market developer and create an environment governed by the rules of fair play and transparencyInvestors ,too have a responsibility to upgrade their knowledge and skills.

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Above all the Governance function in its appropriate perspective needs to be taken seriously by all involved in and around the corporate.

Otherwise, losses and accompanying travails of investors would continue to recur.

Faith will tumble time and again.

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It is said: The Lord lives in faith; if governance is not looked upon as that high a function in the corporate sector, investors will always be left in the dark.

It is our job to lead them to light and the corporate sector to consistent prosperity

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