SYNOPSIS
TITLE SHAREHOLDERS R IGHT IGHT TO PARTICIPATE IN THE MANAGEMENT
OF THE COMPANY
STATEMENT OF PROBLEM:
Which rights are been given to the shareholders of the company and are the really exercised?
HYPOTHESIS:
In order to conduct a research work, some important hypotheses are to be formulated. The focal points and assumptions are normally available through the formulation of hypothesis. The major hypotheses developed on the basis of study of available literature and evaluation of primary as well as secondary data and work done earlier including related studies is that !"hareholder !"hareholderss are the real owners of the company and get a real opportunity opportunity to exercise their rights connected with their participation in the compan y#
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REVIEW OF LITERATURE: LITERATURE:
Articles Referre:
$ai%uka &asaaki, &asaaki, Corporate Governance in Asia OECD Principals and Beyond, $ai%uka 'ourth (ound Table on )apital &arket (eform in *sia+-+ *pril /++/. 0aums Theodor, Shareholder Representation and Proxy Voting in the European
nion! A Co"parative Study, 1aper, presented at the )onference on )omparative )orporate 2overnance 3amburg, &ay 4-5, 5. &uller $asp $aspar ar,, Corp Corpor orat atee &ul
Gove Govern rnan ance ce and and Glo# Glo#al alis isat atio ion n $he $he Role Role and and
Responsi#ilities o% &nvestors' &nvestors' 6uhamel
7incent, nt,
Shar Shareh ehol olde derr
Righ Rights ts
and and
the the
E(ui E(uita ta#l #le$ e$rreat" eat"en entt
o%
Shareholders, The 'ourth *sian (oundtable on )orporate 2overnance, &umbai, India, -/ 8ovember /++/. &argarita, Protection o% shareholder shareholder rights' 2reen &argarita, Protection OECD Princi Principle pless o% Corpor Corporate ate Govern Governance ance on Shareho Shareholde lder r 8estor "tilpon, OECD Rights and E(uita#le $reat"ent! $reat"ent! $heir Relevance to the Russian )ederation'
B!!"s Referre:
•
6atey 7."., !"tudent 2uide to )orporate 9aw#, :Taxmann *llied "ervice, 4th ed., /++/;.
Ot#er S!$rce: •
(epo (eport rt of the the $uma $umarr &ang &angal alam am )omm )ommit itte teee on )orp )orpor orat atee 2ove 2overn rnan ance ce (ecommendations (elating to !"hareholder#.
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OB%ECTIVE OF THE STUDY
The following *ims and
To examine the rights of the shareholder=s given by the company
/.
To examine how corporate governance is related to shareholder=s rights.
>.
To examine the International "cenario of corporate governance related to shareholder=s rights.
RESEARCH METHODOLGY
This is a 6octrinal (esearch project and the relevant material for this project has been collected from the primary as well as secondary sources. 6octrinal (esearch is a research as we all know that it is based on the principles or the propositions made earlier. It is more based on the sources like books of the library, and through various websites. *t this point of time it is pertinent to review the literature from where the relevant material has been collected. 'or the purpose of the said (esearch 1roject the (esearcher has collected the relevant material from books on )ompanies *ct 4 and also from committee reports.
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CHAPTERI&ATION )hapter I
I8T(<6@)TI<8 )hapter II
"3*(A3<96A( (I23T" )hapter III
I8"TIT@TI<8*9 "3*(A3<96A(" )hapter I7
I8TA(8*TI<8*9 ")A8*(I< )hapter 7
)<8)9@"I<8 *86 "@22A"TI<8"
T'(le Of C!)te)ts
C!)te)ts
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)hapter I
-+
)hapter II
-B
)hapter III
4-5
)hapter I7
C-
)hapter 7
/+-/
0ibliography
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CHAPTER,I INTRODUCTION
In the present world corporate governance has become a sensible measure for the long term success of the company. There has been great interest in corporate governance
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because developing good corporate governance is essential to restore economic vitality and fostering sustainable economic growth and d evelopment.
'or shareholders, effective )orporate 2overnance structures have become important criteria for selecting the companies in which they wish to invest when making positive investment decisions. *s the investors are interested in long term benefits therefore they have now started to analyse the corporate governance structure of the companies. The investors have now started comparing the various companies that which company has implemented the various recommendations regarding corporate governance as mentioned in various important codes.
The important purpose of corporate governance is to safeguard the shareholders rights in the company and also to pay special attention that there should be eDual treatment with the shareholder of same category. )orporate governance practices have emerged in free market economies as a set of structural arrangements with a aim of developing a relationship between the management of companies and the interests of its shareholders. "ubseDuently, corporate governance concerns extended to the interest of other stakeholders and eventually to society at large. Therefore a sound corporate governance system reDuires that shareholders can actively participate in, and exert influence on, corporate strategic decision-making. The two important principle of corporate governance can be elucidate as $he %irst principle! *$he corporate governance practices should give the shareholders a real opportunity to exercise their rights connected +ith their participation in the co"pany' $he second principle! *$he corporate governance practices should ensure e(ual treat"ent o% shareholders +ho o+n the sa"e nu"#er o% shares o% the sa"e type -category.'
The shareholders are the owner of the company and by virtue of this they have various rights and obligation in a company. "ome of the basic rights in the company are ensuring adeDuate methods of ownership registration, conveying or transferring shares, SHAREHOLDERS R IGHT TO PARTICIPATE IN THE MANAGEMENT OF THE COMPANY
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participating in the company=s profits, obtaining information on a timely basis, participating and voting in general shareholder meetings. *long with these there are various other rights of the shareholder and one of the most important among all these is the right to take part in the management of the company. The most important channel for shareholders to influence how the company has to run is to attend and vote at the general assembly meetings.
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CHAPTER,II SHAREHOLDER RIGHTS
PARTICIPATE IN GENERAL MEETINGS:
The shareholders are involved in taking major decisions about the company. These decisions are basically taken in the general meetings. These decisions are in form of !resolution#. Avery year there is one meeting of the members has been organi%ed and this meeting is called as the *nnual 2eneral &eeting. In addition to this if there is any emergency or need to transact urgent business than an Axtra
VOTING RIGHT:
7oting at the general meetings of companies is the most valuable and fundamental mechanism by which the shareholders accept or reject the proposals of the board of directors as regards the structure, the strategy, the ownership and the management of the corporation. Therefore shareholder voting is an integral part of the governance structure of publicly held corporations.
(eDuiring shareholder consent for any fundamental change in corporate policy is a safeguard for the residual risk-bearers of a corporation against ex post expropriation by the management. The right to vote assures the shareholders that without their approval the basic terms of their investment cannot be altered. *lso, vesting voting rights in shareholders is the only feasible method to implement major improvements of corporate policy that affect the terms of their investment.
In other words we can say that the voting is the only mechanism available with the shareholders for exercising an external check on the board and the management. It is
Section 166(1). Companies Act.
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important to ensure that those votes are cast in a manner that is most consistent with the long-term best economic interests of the company=s shareholders. (ight to vote is one of the most effective tools for promoting good corporate governance. To maintain this effective tool all shareholders should receive eDuitable treatment, including minority and foreign shareholders and all shareholders should be able to obtain effective redress for violation of their rights. &ore specifically shares of the same class should have the same vote, information on the voting right should be provided before the purchase of the
share, any changes in voting rights should be subject to shareholder vote, custodians or nominees should cast votes as agreed upon with the beneficial
owner of the shares, company procedures should not make it unduly difficult or expensive to cast
votes, insider trading and abusive self dealing should be prohibited, and members of the board and managment should be reDuired to disclose any material
interest in transactions or matters affecting the corporation
@nder the Indian )ompanies *ct, all holders of eDuity shares as on the date of the *nnual 2eneral &eeting are entitled to vote. * member=s voting right are in proportion to his share of the paid up capital in the company./ In case of share issued with disproportionate voting right as permissible under "ection C, the voting right will be as per the terms of the issue of the share.
P!st'l B'll!t:
There is also a concept of postal ballot under the companies *ct. The concept has been stated in the section /* which has been brought in to force on 4th june /++. The main /
Section 87, Companies Act.
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idea behind postal ballot is to confirm the !corporate democracy#.> This is like there are lakhs of shareholder spread all over the country and it is not possible for all of them to be present in the meeting. Therefore to remedy this situation this concept has been brought in this the shareholder can vote by post without attending the general meeting.
Pr!-.:
If a shareholder of the company is unable to attend the meeting than he can appoint a proxy to attend the meeting.B "uch another person may or may not be the member of the company. * proxy is basically one acting for another. 1roxy who has been appointed is entitled to attend the meeting and can vote on behalf of the principal member. 1roxy is acceptable in almost all part of the world for example in *ustria, 0elium, 'rance, 2erman and @nited $ingdom etc.
*long with this there is a new concept emerging and that is of Alectronic sending of vote and some countries have already adopted this concept. 'or example 0elgian law leaves it to the companies and their by-laws to decide whether shareholders can vote by mail or in person. In 'rance 7oting by mail is permitted by the law. "hareholders may also vote by fax, as long as they also mail the official ballot to the company.
0asically all these emerging concept of voting is to give effect to the voting right of the shareholder. 0ecause the only mechanism available with the shareholders for exercising an external check on the board and the management is voting. Therefore it is important to ensure that all the votes have been casted properly.
APPOINTMENT OF DIRECTOR
Datey V.S., “Student Guide to Corporate La!, 1"8(#a$mann A%%ied Ser&ice, ' t ed., **). B Section 176, +ndian Companies Act. >
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The shareholders, who are the ultimate owner of the company are authori%ed only to take decision in respect of major policy matter only to the extend specified in the )ompanies *ct. *s we know that there is a divorce between the management and the ownership and therefore the shareholder cannot interfere in the day to day management of the company. 'or the same reason they appoint director to look over the company.
CHAPTER,III INSTITUTIONAL SHAREHOLDERS SHAREHOLDERS R IGHT TO PARTICIPATE IN THE MANAGEMENT OF THE COMPANY
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In the present time many countries of the world have institutional investors who are making up a significant percentage of the total investment population. In the @"*, for example, institutional investors, including pension funds, hold around 4+E of all listed stock.4 In India also Institutional shareholders have acDuired large stakes in the eDuity share capital of listed companies. The institutional investors are now in the process of becoming majority shareholders in many listed companies and own shares largely on behalf of the retail investors. They thus have a special responsibility given the weightage of their votes and have a bigger role to play in corporate governance as retail investors look upon them for positive use of their voting rights. In the recent years the focus of the institutional investors has been changing from that of !trading# to longer-term ownership of shares, which has an implication on /'rtici/'ti!) i) t#e 0')'*e0e)t !f t#e c!0/')ies in which they invest. 8ow the institutional
shareholders are focusing more on the long-term relationship with the companies by retaining the ownership of the shares.The paradigm shift of institutional investors towards long term ownership of the shares is having a major influence on corporate governance in the sense that institutional investors reDuire a greater level of accountability and transparency, and have the back-office resources to ensure that they can play an effective role as concerned and active shareholders.5
In this regard it is very pertinent to the
4
ttp--.commerce.o&./-don%oads-c0o&ernance-oo21+nside.pd3. 4as &isited on '-*"-**5.
eport o3 te umar 9ana%am Committee on Corporate Go&ernance : ecommendations e%atin to “Sareo%der! Cf. ttp--in.eocities.com-2sta/i%ity-in/an2-corpo&ern-sareo%ders.tm% 4as &isited on 6-*"-**5. 5 C
Supra 3.n 1 ;rani De&e%opment.
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*Controlling shareholders, +hich "ay #e individuals, %a"ily holdings, #loc alliances, or other corporations acting through a holding co"pany or cross shareholdings, can signi%icantly in%luence corporate #ehavior' As o+ners o% e(uity, institutional investors are increasingly de"anding a voice in corporate governance
This extract from the
The $umar &angalam )ommittee (eport on )orporate 2overnance has also made certain recommendations with regard to the institutional shareholder as to Take active interest in the composition of the 0oard of 6irector 0e vigilant
(egular and systematic contact at senior level for exchange of views on
management, strategy, performance and the Duality of management. Ansure that voting intentions are translated into practice Avaluate the corporate
governance performance of the company.
The above recommendations, principles F practices elsewhere in the world have indicated that institutional shareholders because of their collective stake can sufficiently influence the policies of the company so as to ensure that the company they have invested in compliance with the corporate governance code in order to maximi%e shareholder value. *t the same time the active participation of institutional investors can bring about a greater scrutiny, accountability and transparency of companies. This makes it doubly important that institutional shareholders take their role as investors seriously and act accordingly for the enhancement of good corporate governance.
Supra 3.n
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CHAPTER,IV INTERNATIONAL SCENARIO
The development of the ; the role of stakeholdersG B; disclosure and transparencyG and 4; the responsibilities of the board.
In the <)A6 principles of corporate governance there is a clear mention that the key shareholder rights are the participation in any decision concerning fundamental corporate changes and the right to be informed of options to address these changes. These fundamental changes can be amendments in the corporate chapterG authori%ation of additional sharesG and extraordinary transactions that result in a fundamental change of the asset structure. This principle is totally in favor of the shareholder right to take part in the management of the company.
The second chapter of the 1rinciples emphasi%es that all shareholders, including minority and foreign shareholders, should be treated eDuitably by controlling shareholders, boards and management. Insider trading and abusive self-dealing should be prohibited. The 1rinciples call for transparency with respect to distribution of voting rights and the ways +
ai
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voting rights are exercised. They also call for disclosure of any material interests that managers and directors have in transactions or matters affecting the corporation. *t the international level, the
The I)28/ principles also recogni%es the object stated in the
The Auropean @nion and its member states are totally in favor of the shareholder participation in the management. It sates that the shareholder to be treated eDuitably and there should be no barrier with regard to the shareholder attending the general meeting, whether in person or by proxy.
Therefore it is clear that mostly all the countries around the world are now recogni%ing the right of the shareholder. Avery country all over is now taking steps to make fair and eDuitable participation of the shareholders.
estor Sti%pon, OECD Principles of Corporate Governance on Shareholder Rights and Eqita!le "reat#ent$ "heir Relevance to the Rssian %ederation, C3. ttp--.im3.or-e$terna%-pu/s-3t-seminar-***-in&est-pd3-nestor.pd3. 4 &isited on 5*-*"-**5. /
+nternationa% Corporate Go&ernance etor2.
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CHAPTER,V CONCLUSION AND SUGGESTIONS
The shareholders are really the ultimate owner of the company. They bear all the risk of the business and stand to gain the profits arising out of it. They have heavy risk on their shoulders because if the business will have profit then they will also earn dividends but if the business will incur losses than their money which is involved is also gone.
"hareholder has various rights in the company.
In the present scenario corporate governance is holding very important place in the corporate world. Avery company in the world is trying to incorporate the basic principles of corporate governance.
Therefore it is very clear that for the better performance of the company there should be proper transparency and shareholders should be well informed about the management of the company and there should be proper participation on the part of the shareholders.
There are some suggestions with regard to the shareholder participation and the eDuitable treatment of the shareholder in the company can be increased.
"eparating ownership and management will help to reduce the conflicts between
majority "hareholders and minority shareholders.
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Institutional shareholder can be encouraged by the 2overnment policies as it will
improve both the overall Duality of investors and companies in which to invest. There are many ways for governments, institutions, companies and the press and
other media to communicate with the investment community to increase shareholder participation and confidence. 'or publicly listed companies, the primary goal should be to share accurate and
transparent company information with the investment community and to ensure good performance for all shareholders in the company. There is a need to make laws in order to improve participation at shareholder
meetings and through the proxy voting process and are looking at allowing greater reliance on new technology for better corporate governance. Alectronic communication techniDues in the transmission of voting instructions
should be encouraged.
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BIBLIOGRAPHY:
Articles Referre:
$ai%uka &asaaki, Corporate Governance in Asia OECD Principals and Beyond,
'ourth (ound Table on )apital &arket (eform in *sia+-+ *pril /++/. 0aums Theodor, Shareholder Representation and Proxy Voting in the European
nion! A Co"parative Study, 1aper, presented at the )onference on )omparative )orporate 2overnance 3amburg, &ay 4-5, 5. &uller $aspar, Corporate
Governance and Glo#alisation $he Role and
Responsi#ilities o% &nvestors' 6uhamel
7incent,
Shareholder
Rights
and
the
E(uita#le$reat"ent
o%
Shareholders, The 'ourth *sian (oundtable on )orporate 2overnance, &umbai, India, -/ 8ovember /++/. 2reen &argarita, Protection o% shareholder rights' 8estor "tilpon, OECD Principles o% Corporate Governance on Shareholder
Rights and E(uita#le $reat"ent! $heir Relevance to the Russian )ederation'
B!!"s Referre:
•
6atey 7."., !"tudent 2uide to )orporate 9aw#, :Taxmann *llied "ervice, 4th ed., /++/;.
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We( Sites:
httpwww.iccwbo.org)orp2ovshareholders.asp
httpwww.oecd.orgdataoecd4BC/+C>.pdf.
httpwww.ellipson.comfilesdebatedebateJsummerJ+/e.pdf
httpwww.ffhsj.comcmemos+>+5JworkersJcommittee.pdf
httpin.geocities.comkstabilityinbankcorpgovernshareholders.html
httpwww.oecd.orgdataoecd>B>/+55BB.pdf.
httpwww.oecd.orgdataoecdB//BCBC4B.pdf.
httpwww.corp-gov.orgbddb.php>?dbJidKB/>FbaseJidK>
httpwww.imf.orgexternalpubsftseminar/+++investpdfnestor.pdf.
httpwww.commerce.gov.bhdownloadscJgovernance0ookInside.pdf.
Ot#er S!$rce:
•
(eport of the $umar &angalam )ommittee on )orporate 2overnance (ecommendations (elating to !"hareholder#.
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