Their relationship and

attendant issues

1

Shareholders are the owners, but directors’ duties are to the company – not to any particular class of stakeholders.

While directors’ duties are to the company, it cannot be ignored that shareholders are the owners of the company.

NATURE OF RELATIONSHIP

2

Institutional shareholders

Small private shareholders

Large private shareholders

Corporate Shareholders

TYPES OF SHAREHOLDERS

3

Mutual funds

Pension Funds

Insurance Companies

Investment institutions

In UK, it is believed that institutional shareholders hold, on an overall basis, a majority of shares of all listed companies.

INSTITUTIONAL SHAREHOLDERS

4

• Long term interest in share value growth• Current returns are still important

• They have the power and ability to influence Boards• But do they have the time to pay attention to every single

company• Monitoring systems for danger signals

INSTITUTIONAL INVESTORS

PERSPECTIVE

5

Individuals

Only interest in share price change

No long term interest

Only a little interest in earnings

Reactive buyers/sellers

Biggest losers when things go bad

No influence over Boards

SMALL PRIVATE SHAREHOLDERS

6

Individuals (but may be acting through trusts, private limited companies, etc.)

Have long term interest in the company

May have great influence on the company

May provide bulk of executive directors

In Pakistan, these people are the focus of corporate governance activities.

LARGE PRIVATE SHAREHOLDERS

7

Group, or holding companies.

Differ from institutional investors.

Have a long term interest in the company.

Can influence the Board most.

Tax structures often inhibit holding companies.

How SBP/SECP rules are creating groups

CORPORATE SHAREHOLDERS

8

10% of EDs in European companies do not know who their top 50 shareholders are.

25% of their CEOs had met only half of their top 50 shareholders

In Pakistan, most listed companies have majority held by a family or group and they do not seem to attach any

importance to any other shareholder.

SOME INTERESTING FACTS

9

Rules on disclosure of shareholding pattern.

Important changes in shareholding pattern are required to be notified to SEs (The 3% level for UK).

Register of Directors’ interest in shares or debentures of the company (UK)

CONCENTRATED SHAREHOLDING

10

Accountability of the Board

Transparency / communication

Minimizing conflicts of interest between directors and shareholders

Good management leading to:

Good returns

Capital growth

Fair division of spoils

WHAT DO SHAREHOLDERS EXPECT?

11

Shareholders must approve:

Class 1 transactions

Large size relative to size of the company

Related party transactions

Financial statements

Audit report is for shareholders

Directors remuneration

SHAREHOLDERS HOLD ON BOARD

12

Direction: One way reporting or Two way communication

Nature: Formal or Informal communication

Scope: All or some shareholders

Frequency: Regular or irregular, need based.

COMMUNICATION BETWEEN

SHAREHOLDERS & BOARD

13

Between Board and institutional investors

Large companies: many institutional investors

Small companies: not enough attention from Institutional Investors

Between NEDs and major shareholders

Chairman is often an NED

Role of SID

PLANNED MEETINGS

14

Chairman’s Statement

OFR (including analysis)

Compliance Statement (with CCG)

CSR – Sustainability reports

NON-FINANCIAL REPORTING

15

Combined Code says:

Encourage attendance

Let them ask questions

Separate voting (avoid grouping issues)

Vote counting:

Show of hands / one vote per share

Proxies

Electronic voting

THE AGM

16

Dialogue with companies

Evaluating their disclosures

Judicious use of vote

ROLE OF INSTITUTIONAL INVESTORS

17

Refers to stand taken by shareholders against recommendations of the Board.

Do they have adequate rights or power?

Result less important than show of dissent.

Can work only if institutional investors participate.

Do institutional investors have a duty to communicate with other shareholders?

SHAREHOLDERS ACTIVISM

18

Re-election of directors

Re-appointment of auditors

Approval of accounts and reports

Approval of directors’ remuneration

Justification for past payments

Proposed Schemes

Dividend recommendations

Changes in share capital

AREAS OF SHOW OF DISSENT

19

Monitoring performance

Intervention

Evaluation of performance

Reporting direct to other stakeholders

AREAS OF ACTIVISM BY I.I.

20

Association of British Insurers (ABI)

National Association of Pension Funds (NAPF)

Institutional Shareholders Committee (ISC)

International Corporate Governance Network (ICNG)

BODIES SUPPORTING ACTIVISM

21

Residual rights to property and profitsRight to equitable treatment

Protection against inside trading and market abuseDisclosure and transparency

RIGHTS OF EQUITY SHAREHOLDERS

22