Best Practices for Dealing with Non-Controlling Shareholders An Institutional Investor’s Perspective

1. Best Practices for Dealing with Non-Controlling ShareholdersAn Institutional Investor’s Perspective Delhi, 16th February 2006 Christian Strenger* OECD Policy Dialogue – Corporate Governance in India * Chairman, International Corporate Governance Network (ICGN) Member of the ‘German Government Commission on Corporate Governance’ Member of the Supervisory Board, DWS Investment GmbH, Frankfurt

2. Profile: DWS Investments • EUR 110 bn fund assets for more than 4 million clients • No. 1 mutual fund company in Germany • Leading across Europe, within the top 10 globally* • More than 500 funds • Ranked “Best Mutual Fund Company“ in Germany by S&P 11 consecutive years • Expertise in all capital markets • Superior performance and track record in innovation • Strong presence in Asia Pacific: EUR 4.7 bn (of which India 613 mn) *) by AuM

3. I.The value proposition and main ingredients of good corporate governance • Empirical studies confirm the value relevance of good corporate governance • Harvard Law School: disregard of shareholder right causes lower firm valuation and is associated with 7.4% p.a. negative abnormal returns during the 1990 – 2003 period • Deutsche Bank Research: a portfolio of European companies with improving governance standards outperformed a portfolio of deteriorating companies by 4.4 % per annum • Governance-focused Hermes UK Focus Fund outperformed its benchmark by an average 4.8 % each year from 1999 through 2004 • CLSA Governance Scoring (including India) confirms higher stock markets valuation of firms with better governance practices

4. I.The value proposition and main ingredients of good corporate governance (cont‘d) • Establishment of good governance not only important for companies but also for institutional shareholders in the face of increasing competition • India – a long term winner through better corporate governance • Transparency, independence and absence of conflicts of interest are the main ingredients of good governance

5. II. Key prerequisites for success with non-controlling shareholders (1/4) Transparency standards in line with international requirements • Comprehensive disclosure of all relevant financial and non-financial information • High compliance with international accounting standards (IFRS) • Timely disclosure of share-dealings by insiders and controlling shareholders • Low disclosure thresholds for share positions • Clarity and comprehensiveness of the information • Equal distribution of information to all shareholders

6. II. Key prerequisites for success with non-controlling shareholders (2/4) 2) Convincing independence and quality of boards and auditors • Sufficiently independent non-executive directors with high qualifications • Board committees with at least a majority of independent members • Particular relevance for listed state-controlled companies • Sufficient auditor independence and high work quality

7. II. Key prerequisites for success with non-controlling shareholders (3/4) 3) Equitable treatment of shareholders • Super- and non-voting shares a deterrent to investors (one share – one vote principle a must) • Enable unrestricted cross-border voting and eliminate other voting barriers by electronic and legal means • Shareholder access to all relevant financial and non-financial information • Holders of depository receipts to enjoy the same voting rights • Fair treatment in merger transactions

8. II. Key prerequisites for success with non-controlling shareholders (4/4) 4) Satisfactory control and enforcement of good governance through independent regulators and other bodies • Effective enforcement essential • Sanction mechanisms must bite • Efficient protection against insider-trading and abusive self-dealing • Centralise competencies in one market supervisory authority • Independent arbitration panel for market-related solutions

9. III. Institutional investors have a fiduciary duty to act convincingly in the interest of their clients • Convincing external governance actions a must • Internal responsibilities as important prerequisites • Institutional investors must be exemplary in comprehensive and educated exercise of voting rights • Development and disclosure of comprehensive corporate governance and voting policies encouraged by the regulators • Pursuit of critical, yet constructive dialogue with companies • Compliance with high standards of transparency • Sufficient independence of the supervisory body • Clear separation of functions • Process to manage potential conflicts of interest should be explained • Disclosure of the internal governance policy • ICGN Statement on Shareholders Responsibilities as guidance

10. IV. A good governance framework is essential but only sufficient quality convinces institutions to be long-term shareholders • Better governance quality cannot be achieved by prescription of good laws and proper enforcement only • International guidelines and regulations a good basis for better governance practices (OECD, World Bank, and the ICGN) • Vital to use practical tools (rating and scoring systems) to achieve better understanding and implementation of good governance • Both the companies and their shareholders have to play their active part • Company executives and their supervisory directors must accept that an active pursuit of good governance is paramount for longer-term success • Investors must play their part by an active engagement with the companies they invest in

11. IV. A good governance framework is essential but only sufficient quality convinces institutions to be long-term shareholders The motivation to pursue good, even better corporate governance is simply the self-interest of all concerned: outperformance for the investors, better financing for the companies and more efficient systems for the countries and their governments

12. Best Practices for Dealing with Non-Controlling ShareholdersAn Institutional Investor’s Perspective Delhi, 16th February 2006 Christian Strenger* OECD Policy Dialogue – Corporate Governance in India * Chairman, International Corporate Governance Network (ICGN) Member of the ‘German Government Commission on Corporate Governance’ Member of the Supervisory Board, DWS Investment GmbH, Frankfurt