Transcript Presentation by Mr. Rajnikant Patel

Corporate Governance and
Capital Market Regulations
Rajnikant Patel-MD & CEO
Bombay Stock Exchange Ltd
Friday, February 17, 2006
1
New Paradigm
• Corporate Governance issues are more
challenging on account of a new paradigm
of
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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
2
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
3
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
4
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
5
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
6
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
7
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 shortterm approaches and quick-fixes
• An aspect of corporate governance not often
discussed
8
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
9
Thank You
10