The Role of Institutional Investors in CG

Arif Hartono, SE. MHRM. PhD.

Institutional Investors
Institutional investors mean not

individual investors Institutional investors have become the largest sareholders in many countries

Illustration (UK)
Type of Investors Individuals Insurance companies Pension funds Unit trusts Overseas

1963(%) 54 10 6 1 7

2004(%) 14 17 16 2 32

Influence of Institutional Investors

Due to the size of their shareholders, the

power of institutional investors are very strong

Monitor performance Evaluate & report Intervene when necessary

Institutional Investor-Investee Companies Relationship

CG may be used as a tool for extracting value for

shareholders from underperforming, undervalued companies Tools of CG:

One-to-one meetings Voting Focus list CG rating systems

One-to-one meeting
The meeting (communication) institutional

investors & companies are extremely important A company will usually arrange to meet with its largest institutional investors on a one-to-one basis during the course of the year The most important issues: the firms strategy & the palling achieve its objectives

Voting
The right to vote that is attached to

voting shares is a basic prerogrative of share ownership The right to vote is a fundamental element of control by shareholders

Focus lists:
Underperforming companies Not responding appropriately to the

institutional investorss enquiries regarding underperformance Not taking account of the institutional views

CG rating systems
CG rating systems provide a useful indication of

the CG environment in specific countries & individual companies within those countries Rating of CG in a given countries, including:

Transparency of CG CG practices A code of best practices What sanctions to companies

CG & Corporate Performance

Good CG can help to ensure that

companies do not fail A company with good CG is more likely to attarct external capital flow