What are institutional investors?
Institutional investors are organisations that invest money on behalf of their clients, such as pension funds, insurance companies, and mutual funds. These investors typically have large amounts of capital and are able to influence the management and performance of the companies in which they invest.
Why are institutional investors important for a business?
Institutional investors, are important for businesses because they hold significant amounts of financial capital that can be invested in the stock market. Institutional investors are responsible for managing the investments of millions of individuals and organisations, and they have the ability to use their voting power to influence the management and governance of the companies in which they hold investments.
There are several reasons why institutional investors are important for businesses:
1. Provide capital
Institutional investors provide capital to businesses through the purchase of shares in the company. This capital can be used to fund operations, research and development, and other activities that support the growth and success of the business.
2. Provide liquidity
They can help to provide liquidity to the stock market by buying and selling shares as needed. This can help to stabilise stock prices and reduce the risk of market volatility.
3. Provide oversight
They can serve as a form of oversight for businesses by holding management accountable for their actions and ensuring that they are acting in the best interests of shareholders.
4. Can help to attract other investors
The presence of They can help to attract other investors to a business, as their involvement may be seen as a sign of confidence in the company.
What is institutional shareholder intervention?
Institutional shareholder intervention refers to the actions taken by institutional investors, such as pension funds, mutual funds, and insurance companies, to influence the management and governance of the companies in which they hold investments.
Typically they are significant shareholders in many public companies and have the ability to use their voting power to influence the decisions made by these companies. They may do this through activities such as:
1. Voting at shareholder meetings
Institutional shareholders can vote on matters such as the appointment of directors, the adoption of financial statements, and the approval of major transactions.
2. Engaging with company management
They may engage with company management to discuss their concerns and to seek changes in corporate strategy or governance practices.
3. Participating in proxy voting
They may participate in proxy voting, which involves voting on shareholder proposals and other matters through a representative, rather than attending shareholder meetings in person.
4. Filing shareholder resolutions
They may file shareholder resolutions, which are proposals put forward by shareholders for consideration by the company at shareholder meetings.
Overall, institutional shareholder intervention can be a powerful tool for influencing corporate governance and promoting long-term value creation. It is an important aspect of the role of institutional investors as stewards of the financial capital entrusted to them by their clients.
Morever, institutional investors, such as pension funds, mutual funds, and insurance companies, play a critical role in upholding general principles, such as transparency and accountability, by using their voting power to influence the management and governance of the companies in which they hold investments.
This content can be used as part of the Strategic Business Leader (SBL) module for the Association of Chartered & Certified Accountants (ACCA) examination.
Click here to read more tips & content covered in the Strategic Business Leader module.
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