Impact of Institutional Investors on Corporate Governance - Dissertation Example

Download file to see previous pages The advent of high finance and its utilization in the operations of Incorporated business organizations created a situation many decades ago in which it was recognized that owners and shareholders need not always see eye to eye. The directors that oversee functional operations over day-to-day matters do not always have the same vested interests as the shareholding owners of the corporation. The interests of operational control may not match the objectives of other individuals interested in slow and steady growth of assets and equity. But the considerable benefits of ownership by way of investment have been recognized for nearly the entirety of the 20th century, thus investors by necessity must gain certain rights and privileges. The role of these investors is an evolving understanding that balances the nuances of organizational agility against long-term growth. Theories of corporate governance must be developed to define the responsibilities of investors and the degree to which they can influence operations without stressing corporate resources beyond their ability to perform. (Davis, 2002)

Possible examples might include the director/executive officer, who may have founded the business wanting to maintain control possibly for sentimental reasons – the business might have been in his family for many years. Or, the business might be a valuable source of jobs for a particular local community. But the investors that can help a business rise to the world stage might feel that their interests are best served through mergers or takeovers that permit a favorable return on investments based upon various stock options and projected share values. Certain individuals may perceive a loss of livelihood, and thus oppose measures that will increase the profits of those that have injected vast amounts of capital to make the business what it is. Arbitration and compromise are necessities.

OVERVIEW
Over three decades institutional investors have superseded private individual shareholders in the world's most important capital markets. Western institutional investors have become a dominant force in most capital markets as well as in the realms of corporate governance. Methods of participation are shifting away from a passive presence on the board of directors of a given Corporation towards a more proactive role. During the 1990s, measures to facilitate the supervision of institutional investors have become an important part of the external controls of corporate governance; by which the maximization of profit is encouraged.

The uncertain climate of China's regulatory system, as it pertains to investments and securities has limited the role institutional investors would otherwise play in corporate governance. There are still hurdles to overcome with respect to the modernization of China's legal system pertaining to matters of high finance. This uncertainty needs to change to facilitate the participation of institutional investors in corporate governance in the world's most populous country.

BACKGROUND
It goes without question that the modern corporation is the most active player as it currently exists not only in the Western world but in Japan, and increasingly in China. The modern corporation becomes in a broad sense a sort of currency of national wealth, with a correspondingly increasing influence in politics and culture. This is true not only with respect to large corporations with tradable shares but also through small-town personal businesses – that aspire to become large corporations with tradable shares. ...Download file to see next pages Read More