Governance and Responsibility: Governance: Reporting &

Disclosure

Institutional investors

• Institutional investors manage funds invested by inviduals• 4 types of institutional investors:• Pension funds• Insurance and takaful companies• Unit and investment trusts• Banks

Importance of institutional investors

• Increasing dominance of institutional investors in monitoring management which potentially result to positive contribution to governance by concentrating power in a few hands

• Fund managers and other professionals working for the institutions have the skills and expertise to contribute towards the direction and management of a company

Potential problems of institutional investors

• Short-termism of fund managers• Lack of skills of trustees• Lack of influence of individual shareholders• Creates complex ownership and control issues

Insitutional shareholders intervention

• Strategy: in terms of products sold, market serviced, expansion pursued or other aspects strategic positioning• Operational performance: divisions persistently underperformed • Remuneration policy: relate to failure to curtail extreme rewards• Internal control: relate to failure in quality and budgetary control• Social responsibility: relate to failure to protect environment • Succession planning: relate to failure to balance board

composition• Failure to comply with relevant codes

Annual General Meeting (AGM) Extraordinary General Meeting (EGM)

• Must be held once every calendar year• Legally required• Separate resolutions for each issue• Not less than 21 days’ notice required• First must be held no more than 18 months

from the date of incorporation and thereafter no more than 15 months between meetings

• All shareholders must be notified and entitled to attend

• Annual accounts and appointment of auditors (if appropriate) approved at this meeting

• Not set timetable – held on an ‘as required’ basis

• No legal obligation to have any• Separate resolutions for each issue• Not less than 14 days’ notice required• All shareholders must be notified and entitled

to attend• Agenda dictated by need for meeting

General meetings

Proxy voting

• Proxy voting system is implemented to ensure • that shareholders who are unable to attend general meetings where

resolutions will be proposed and voted on • can still make their opinions heard

Corporate governance disclosure

• Shareholders are the legal owners of a company and thus entitles them to sufficient information for decision making• The AGM is the only opportunity for the directors to

communicate with the shareholder • The annual reports and accounts are the only legally-required

disclosure to shareholders and the only information received• General principles of disclosure relate to the need to create and

maintain communication with shareholders and other stakeholders

General principles of corporate governance disclosure

• Directors understand interests and concerns of shareholders• Shareholders understand what the company is trying to achieve• Increased shareholders interest encouraging checks on managers

of the company• Potential benefits from closer interest by major shareholders in

company affairs

Best practice CG disclosure requirements

• Annual general meetings (AGM)• Audit Committee• Remuneration Committee• Nomination Committee• Directors

Mandatory vs. voluntary disclosures

• Examples of voluntary disclosures• Chairman and CEO statements regarding company position• Business review (formerly OFR): non-financial language• Governance: a section devoted to compliance with the Code• Any other business: shareholder information including notification of

AGM, dividend history, and shareholders taxation position

Disclosure beyond the annual report

• Press releases• Management forecasts• Analysts’ presentations• The AGM• Information on the corporate websites such as stand alone social

and environment reporting

Motivations behind voluntary disclosure

• Strong disclosure regime can help to attract capital and maintain confidence in company• May be to promote company in a positive light and act as a

marketing tool• Helps improve public understanding of the structure, activities,

corporate policies and performance• Shareholders and potential shareholders require access to

regular, reliable, comparable information for decision making• Weak disclosure and non-transparent practices can contribute to

unethical behavior and loss of market integrity