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Corporate governance still not a key to investment
DEEPAK PATRA | New Delhi, September 17, 2012 16:28
Tags : Foreign Direct Investment | Stock Exchange | corporate governance | institutional investors |
Tags : Foreign Direct Investment | Stock Exchange | corporate governance | institutional investors |
Corporate governance is still more of a copy book term rather than a real parameter to decide investments in India. While almost all investors acknowledge the fact that good corporate governance is associated with high shareholder returns, only one in four investors actually invests in a company purely because of its high corporate governance standards, finds a recent survey.
The survey titled “Institutional Investors: Driving Force for Good Governance”, conducted by CII in partnership with the Institutional Investor Advisory Services (IIAS), found that 94.7% of the institutional investors associate good corporate governance with high shareholder returns, 84.2% believe corporate governance is ‘very important’ in deciding whether or not to invest in a target company, but only 26% actually invest in a company purely because of its high corporate governance standards.
Quality of financial reporting remained the most important parameter for investors evaluating prospective investments with a rating of 3.84 out of 4. This was followed by the reputation of the promoter, the reputation of the company’s management and finally the reputation of the board of directors, said CII in a statement.
Commenting on the findings of the survey that was aimed at understanding the perspective of Institutional Investors as well as dimensions of corporate governance they wish to instill in their portfolio companies, Chandrajit Banerjee, Director General, CII, said, “The findings of the survey outline how these investors can be effective agents for improved corporate governance and value creation, instead of being providers of capital only”.
The survey observed that among PSUs, MNC, Promoter-managed companies and Professional companies, MNCs are perceived to have the highest corporate governance standards with an average rating of 3.67 out of 4. Professional companies are also perceived as generating the highest shareholder returns - they received an average rating of 3.73 out of 4. Understandably then, investors also responded that they are most likely to invest in professional companies, followed by MNCs, family managed businesses and PSUs.
Elaborating the voting behavior of investors, 72% of the respondents said they are willing to invest in non-voting shares. This suggests in-principle indifference between passive and active investing. Among those who responded to this question, 60% of the respondents stated that they exercise voting rights for more than 75% of their portfolio companies, while 33.3% of respondents said they exercise voting rights for less than 50% of their portfolio companies. About 60% of the investors have an internal team in their company to help finalize their voting decision, elaborated the CII Press Release.
The survey released on Monday included responses from 54 institutional investors across the sphere. It comprised of 57% domestic and the balance foreign investors, including mutual funds, insurance companies, hedge funds, private equity funds and pension funds.
Issue Dated: Feb 5, 2017
