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Corporate Governance and Capital Market Regulations

Corporate Governance and Capital Market Regulations. Rajnikant Patel-MD & CEO Bombay Stock Exchange Ltd Friday, February 17, 2006. New Paradigm. Corporate Governance issues are more challenging on account of a new paradigm of Higher levels of institutional/remote ownership

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Corporate Governance and Capital Market Regulations

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  1. Corporate Governance and Capital Market Regulations Rajnikant Patel-MD & CEO Bombay Stock Exchange Ltd Friday, February 17, 2006

  2. New Paradigm • Corporate Governance issues are more challenging on account of a new paradigm of • Higher levels of institutional/remote ownership • Short term nature of ownership • Impact of Globalization • Disruptive forces of technology • Constant churn in management resources • Relentless pressure of quarterly results

  3. Ownership Pattern • Institutional ownership on the rise in India • In the top ten companies (on the criterion of market capitalization) institutional holding vary between 28% and 72% • High levels of interest in the India story likely to strengthen the trend • Better corporate governance norms will pave way for higher levels of investment

  4. Remote investors • With higher levels of institutional holding, remoteness of ownership poses issues • The shareholding patterns in the institutions are often defused and remote - implying low levels of activism • Often short term nature of the investments prevent a holistic view to governance and sustainable growth plans

  5. Globalization & Technology • Increasing globalization has made it difficult to build stable businesses • M&A activities and consolidation change competitive scenario abruptly • The disruptive force of technology can make a business non-viable overnight • High inter-linkages mean higher degrees of vulnerability • Businesses need to grapple with high levels of uncertainty, sometimes discouraging long-term views

  6. Management as a Resource • With access to and information about global markets readily available, capital is relatively less critical for businesses now • Management as a resource more significant for growth and success • Resource characterized by high levels of churn and short-term commitments

  7. Short termisms • Quarterly results exert high levels of pressure to show results • New initiatives and change often take much longer time to yield results • Need to produce short-term results could encourage sub-optional decisions and resource allocation • ESOPs etc. could accentuate the malady

  8. Good Governance • Good Corporate Governance is to promote sustainable growth • Achieve the right balance between the interests of all stake holders • Longer-term view is necessary for sustainability • Host of factors on the other hand encourage short-term approaches and quick-fixes • An aspect of corporate governance not often discussed

  9. Time Horizon • Institutional investors to take a longer term view of their investments and provide continuity and stability in ownership • Institutional shareholder activism will help • Independent directors to evaluate whether strategies are designed to yield only short term results • Executive compensation to be structured for sustained performance • Good corporate governance to encourage management to take longer-term views

  10. Thank You

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