Corporate governance is an important criterion while investing, says a survey by proxy advisory firm Institutional Investor Advisory Services (IiAS) titled 'Institutional Investors' Attitudes to Corporate Governance'. The survey says more than a quarter of the respondents chose to invest in a company purely because of high standards of corporate governance while 79 per cent refrained from investing in a high-growth company solely because of corporate governance issues.
A large 73 per cent of respondents exited a company because of corporate governance concerns, the survey points out. According to more than three-fourth of the respondents, well-governed companies will always command a premium to their industry peers.
The second IiAS annual survey-based on a poll of more than 70 participants across mutual funds, insurance companies, high networth individuals and other institutional investors-has some interesting insights into sectors and companies rated high on corporate governance.
For instance, IT services has been rated the highest on the corporate governance standards followed by FMCG and consumer products, pharmaceuticals, automotive and financial services. Sectors with the poorest governance practices include real estate, infrastructure, mining and metals, and media and entertainment.
The best-governed companies, according to investor perceptions, include TCS, Infosys, HUL, HDFC and HDFC Bank, M&M, and Nestle. Professionally managed companies and MNCs feature more prominently in this list, as compared to promoter-managed firms or public sector units (PSUs).
Although Infosys emerged as a favorite with investors, respondents were divided about N.R. Narayana Murthy's return to Infosys as executive chairman with nearly 49 per cent seeing his move as a repudiation of corporate governance principles. Interestingly, more foreign institutions disapproved of Murthy's comeback than domestic institutions.
So, what are the biggest issues that investors look for when it comes to corporate governance? The survey says clarity in business and accounting practices are considered the most important dimension in corporate governance. Other important aspects include fair dealing with clients and suppliers, strong representation from independent directors, compliance and remuneration.
The survey shows two-thirds of respondents indicated they would initiate action against the company for their grievances. The Companies Act 2013 provides for filing class action suits against companies."When faced with a company proposal that they disagree with, nearly 60 per cent of the respondents are willing to engage with the company - either directly or indirectly. However, a sizeable share of the respondents (28 per cent) said that they would exit the company," the survey adds.
While 54 per cent respondents said the Companies Act was sufficient to address corporate governance concerns, 40 per cent said it was not sufficient.