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A. |
Shareholder Voting:
Institutional shareholders have a responsibility to make considered
use of their votes. |
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4.80 |
Institutional shareholders include insurance companies, pension
funds and professional fund managers. An important degree of
common interest between a private investor and institutional
investors is that they largely hold shares on behalf of individuals.
In particular they have the same stake in standards of financial
reporting and of governance companies in which they have invested.
Given the weight of their votes, the way in which institutional
shareholders use their power to influence the standards of corporate
governance is of fundamental importance. The wording above does
not make voting mandatory; ie, abstention remains an option;
but these shareholders should, as a matter of good practice,
make considered use of their votes. In this respect, institutional
shareholders should take a positive interest in the composition
of boards with checks and balances, and to the appointment of
a core of non-executives of necessary calibre, experience and
independence. In this respect, local institutional shareholder
associations should formulate guidelines for the development
of a constructive relationship between company and the owner. |
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B. |
Dialogue between Companies and Investors:
Institutional investors should encourage direct contact with
companies including constructive communication with both senior
management and board members about performance, corporate governance
and other matters affecting shareholders’ interest. |
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4.81 |
Shareholders receive reports and accounts and other explanatory
circulars from companies which are required by statute or, for
example by, the stock exchange. They also have the right to
attend company meetings where they can raise questions about
the affairs of a company. In addition some companies have a
practice of making presentations to institutional or other shareholders.
While these communications are necessary, they may not be sufficient
to allow companies and shareholders to gain a full understanding
of each others aim and requirements. |
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4.82 |
A direct dialogue gives investors a better appreciation of
a company’s objectives, its potential problems and the
quality of its management, while also making a company aware
of the expectations and concerns of the shareholders. Two way
communication between companies and institutions is an important
aspect of corporate governance because corporate managers need
full information about the assessments of institutions that
hold their shares. Two way communication such as this helps
create a more stable shareholder base. The belief is that shareholders
will be willing to maintain their shareholding and take a longer
term view of their investment if they have a better understanding
of the corporate strategy. |
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4.83 |
We therefore encourage this relationship provided two issues
are properly addressed:
- The information which a company provides to an investor
should not qualify as undisclosed material information about
the corporation.
- Companies should endeavour to ensure that the same opportunity
should be available to all shareholders.
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4.84 |
In this respect the best practice above clarifies that neither
side should be required to enter into dialogue. Individual companies
and investors must remain free to abstain from dialogue; the
sheer numbers on both sides may make comprehensive coverage
difficult. |
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C. |
Evaluation of Governance Disclosures:
When evaluating companies’ governance arrangements, particularly
those relating to board structure and composition, institutional
investors and their advisers should give due weight to all relevant
factors drawn to their attention. |
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4.85 |
This stresses on the importance of considering disclosures
on their individual merits, as opposed to “box ticking”.
Shareholders should show flexibility in the interpretation of
the Code and should listen to directors’ explanations
and judge them on their merits. |
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