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

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Best Practices for Managing Non-Controlling Shareholders An Institutional Financial specialist's Point of view. Delhi, 16 th February 2006. Christian Strenger *. OECD Strategy Dialog

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Best Practices for Dealing with Non-Controlling Shareholders An Institutional Investor's Perspective Delhi, 16 th February 2006 Christian Strenger * OECD Policy Dialog – 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

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Profile: DWS Investments EUR 110 bn support resources for more than 4 million customers No. 1 common store organization in Germany Leading crosswise over Europe, inside the main 10 globally* More than 500 assets Ranked "Best Mutual Fund Company" in Germany by S&P 11 successive years Expertise in every single capital market Superior execution and reputation in advancement Strong nearness in Asia Pacific: EUR 4.7 bn (of which India 613 mn) *) by AuM

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I. The strategic offer and principle elements of good corporate administration Empirical reviews affirm the esteem significance of good corporate administration Harvard Law School: dismissal of shareholder right aims bring down firm valuation and is related with 7.4% p.a. negative strange returns amid the 1990 – 2003 period Deutsche Bank Research: an arrangement of European organizations with enhancing administration norms beat an arrangement of breaking down organizations by 4.4 % for each annum Governance-centered Hermes UK Focus Fund outflanked its benchmark by a normal 4.8 % every year from 1999 through 2004 CLSA Governance Scoring (counting India) affirms higher securities exchanges valuation of firms with better administration rehearses

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I. The strategic offer and primary elements of good corporate administration (cont'd) Establishment of good administration vital for organizations as well as for institutional shareholders despite expanding rivalry India – a long haul champ through better corporate administration Transparency, freedom and nonappearance of irreconcilable circumstances are the fundamental elements of good administration

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II. Key requirements for accomplishment with non-controlling shareholders (1/4) Transparency gauges in accordance with worldwide necessities Comprehensive divulgence of all applicable money related and non-budgetary data High consistence with universal bookkeeping measures (IFRS) Timely revelation of share-dealings by insiders and controlling shareholders Low exposure edges for share positions Clarity and breadth of the data Equal circulation of data to all shareholders

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II. Key essentials for accomplishment with non-controlling shareholders (2/4) 2) Convincing autonomy and nature of loads up and examiners Sufficiently autonomous non-official chiefs with high capabilities Board advisory groups with no less than a lion's share of free individuals Particular significance for recorded state-controlled organizations Sufficient evaluator freedom and high work quality

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II. Key requirements for accomplishment with non-controlling shareholders (3/4) 3) Equitable treatment of shareholders Super-and non-voting offers a hindrance to speculators (one share – one vote rule an absolute necessity) Enable unhindered cross-outskirt voting and wipe out other voting boundaries by electronic and legitimate means Shareholder access to all pertinent monetary and non-budgetary data Holders of safe receipts to appreciate a similar voting rights Fair treatment in merger exchanges

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II. Key essentials for accomplishment with non-controlling shareholders (4/4) 4) Satisfactory control and authorization of good administration through free controllers and different bodies Effective requirement basic Sanction instruments must nibble Efficient insurance against insider-exchanging and oppressive self-managing Centralize skills in one market supervisory expert Independent discretion board for market-related arrangements

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III. Institutional speculators have a guardian obligation to act convincingly in light of a legitimate concern for their customers Convincing outer administration activities an unquestionable requirement Internal duties as vital requirements Institutional speculators must be commendable in complete and instructed exercise of voting rights Development and exposure of thorough corporate administration and voting strategies empowered by the controllers Pursuit of basic, yet productive discourse with organizations Compliance with exclusive expectations of straightforwardness Sufficient autonomy of the supervisory body Clear division of capacities Process to oversee potential irreconcilable situations ought to be clarified Disclosure of the interior administration approach ICGN Statement on Shareholders Responsibilities as direction

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IV. A decent administration structure is basic however just adequate quality persuades foundations to be long haul shareholders Better administration quality can't be accomplished by remedy of good laws and appropriate authorization just International rules and controls a decent reason for better administration hones (OECD, World Bank, and the ICGN) Vital to utilize down to earth apparatuses (rating and scoring frameworks) to accomplish better understanding and usage of good administration Both the organizations and their shareholders need to have their dynamic influence Company administrators and their supervisory executives must acknowledge that a dynamic quest for good administration is foremost for longer-term achievement Investors must have their impact by a dynamic engagement with the organizations they put resources into

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IV. A decent administration structure is basic yet just adequate quality persuades foundations to be long haul shareholders The inspiration to seek after great, far and away superior corporate administration is basically the self-enthusiasm of all concerned: outperformance for the financial specialists, better financing for the organizations and more proficient frameworks for the nations and their legislatures

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Best Practices for Dealing with Non-Controlling Shareholders An Institutional Investor's Perspective Delhi, 16 th February 2006 Christian Strenger * OECD Policy Dialog – 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

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