Corporate Governance in Investment Management Companies.

Abstract

This Article aims at undertaking an in-depth study of the prevalent investment management regime. Companies which provide asset management services for third parties have to pursue good corporate governance as an integral part of their activities. This should be applicable in terms of responsible control and administration inside the company (Internal Corporate Governance) as well as the exercise of the voting rights or any additional shareholder rights by the companies as institutional investors in the interest of their clients (External Corporate Governance). The governance issues become all the more relevant in the light of the fact that they have an impact on the affairs of the companies in the fund portfolio. Thus, the companies should act independent of the interests of the owners, affiliated corporations and third parties, and instead act solely in the interest of the investors. At present the, the Asset Management Companies are governed by the SEBI guidelines and regulations. However, there is a void so far as the issues of corporate governance are concerned. Therefore, in view of the corporate governance of the asset management companies, an attempt has been made to provide suggestions for the mitigation of potential conflict of interests, most notably where the fund's sponsor has business relationship or any other affiliations with the companies held in the fund's portfolio. The case of the HP-Compaq merger, aided by Deutsche Bank that held HP shares under their Asset Management Scheme, provides an insight into the very same problem. In light of the nature of the business conducted by the asset management companies, the viability of a more stringent disclosure mechanism would also be discussed. Furthermore, specific recommendations in the nature of a code for governance of the Asset Management Companies will be proposed.