a)      Enhancing Market Efficiency

Institutional investors are the ones who perform pervasive research and analysis before they arrive at the decision-making point; this value-added service is what makes the market more efficient and also ensures securities are sufficiently priced. Through their engagement in capital markets, markets become more and more competitive. Thereby, additional distribution of transparency and information to every market participant is created, which helps to turn it into a more effective market.

1)    Institutional Investor’s influence over corporate governance

a)      Advocating for Governance Best Practices

Institutional investors promote adopting good management and governance reforms to enhance corporate governance and accountability. Thus, the shareholders’ rights are better protected, leading to more transparent systems. They build connections with some directors, boards, and managers to achieve more independent, diversified, and efficient administrations that, in turn, contribute to the elevation of corporate governance standards and secure a balance of interests of shareholders.

b)     Exercising Voting Rights

Institutional investors claim voting power to change corporate governance decisions by considering executive pay, board appointments, or redirecting corporate strategy. Through instructional proxies and interaction management, they are the kind of people who would come in handy to address shareholders’ concerns and affirm the appropriateness of management’s initiative (Kovermann & Velte, 2019).

c)      Monitoring Financial Reporting

Institutional investors play a crucial role in checking companies’ financial statements before they are released publicly to ensure all the numbers from the financial period in question cover the correct data that adheres to the set of rules and regulations in place. They look at financial statements, disclosures, and accounting practices with a magnifying glass, searching for any hint of wrongdoings and frauds to secure stability and uphold faith in the soundness and fairness of the financial markets (Aguilera & Crespi-Cladera, 2016).

2)    Impact of Institutional Investors on the performance of the firm

a)      Long-Term Investment Perspective

Institutional investors’ long-term investment horizons align with the interests of other stakeholders like employees, customers, or communities. Therefore, the level of stability, sustainability, and value creation within the companies is enhanced. Such patient financing allows a company to pursue strategic initiatives, invest in innovation, and ride out short-term market fluctuations, thus eventually improving the company’s long-term performance.

b)     Access to Capital

Institutional investors allow companies to obtain capital through equity investments and debt financing. This capital can be used to develop growth opportunities, extend operations, and begin acquisition programs. Through dependable sources of money, institutional investors enable firm growth and clarity of value, which enhances firms’ long-run performance (Lin & Fu, 2017).

c)      Influence on Strategic Decision-Making

 Institutional investors’ substantial stakes in companies and active networking with managers can affect strategic decision-making processes, such as capital allocation, mergers and acquisitions, and corporate governance reforms. Their involvement and assistance aim to make informed decisions, minimize risks, and generate value-added projects that boost firm profitability and shareholder return.

Task 2(a)

1)    Corporate Governance in Family Business

a)      Ownership and Control

Most of the time, family businesses reveal the family’s sufficiency in ownership and management. This may result in a blurred distinction between owning and managing the company as family members adopt management roles despite their lack of qualifications, experience, and competence. In addition to creating loyalty and long-term commitment, this can bring about problems such as nepotism and conflicts of interest.

b)     Decision-making Dynamics

In family business, a business decision is sometimes influenced by the dynamics of family relations, various personal factors, and emotions. The crucial move will be based on family preference, which ultimately can ruin long-term business stability and growth (Bodolica et al., 2019).

c)      Succession Planning

Therefore, family business succession planning is considered one of the main governance concerns in family businesses. The succession of the leadership of one generation to another is a dilemma that must be resolved delicately so that the two generations can coexist harmonically. On the other hand, succession planning is challenging because it is intricate, even though the family members may have different interests or capabilities.

d)     Long-term Orientation

In the case of family businesses, a plan is usually built on the principles of sustaining wealth for generations and ensuring the continuation of the business legacy. This can help enterprises build confidence, create traditions, and stand out. On the one hand, it may contribute to conservatism and rigidity, thus stifling innovation and the capacity to stand the test of time in fast-evolving markets (Luan et al., 2018).

2)    Corporate Governance in Family Business

a)      Shareholder Oversight

Listed companies are more exposed to shareholder monitoring and surveillance than family businesses. Institutional investors are key shareholders in the corporate governance system through their voting rights and participation in engagement activities. This makes management more accountable and aligns interests between management and shareholders.

b)     Board Composition

Public-listed companies have more diverse and independent boards than family businesses. Corporate governance codes often require several independent directors to properly oversee and make decisions. Non-executive directors bring different skill sets and viewpoints to the board, which balances biased interests and ensures the board’s efficiency (Pindado & Requejo, 2014).

c)      Disclosure and Transparency

Regulated companies are subjected to strict disclosure and transparency regulations, comprising financial statements and reporting of factual information. Encouraging accountability also strengthens the company’s reputation and facilitates the acquisition of capital markets(Dinh & Calabrò, 2018)..

Task 2(b)       

NEDs play a significant part in firm efficiency, more especially in circumstances where the market for corporate control may impose discipline on managers or are listed entities with distinct types of governance.

a)      Independent Oversight

NEDs occupy a crucial spot in ensuring the impartiality of management decision-making and execution is in place. The Executive Directors, who are primarily involved in the daily operations of the organization, and the NEDs strive to introduce an external point of view and fairness in the boardroom.

These include representation at the annual general meetings, auditing functions, and shareholders seeking accountability in cases where management decisions do not favor the shareholders and other participants.

b)     Strategic Guidance

NEDs contribute by those rational analysis and business practices that are essential for making significant political decisions. Because of their different slang and natural situations, they are new to board meetings, and they can assist in identifying business opportunities and lessening risks (Sarbah et al., 2016). As for family businesses with the possibility of personal preferences or emotions influencing the decision-making process, NEDS will enable such companies to seek independent suggestions and counseling based on their professional backgrounds and experience within the industry.

c)      Governance Oversight

NEDs mainly pay attention to the corporate “governorship” conducted inside the company. They facilitate establishing adequate governing structures and mechanisms through which fairness, ethics, rules, and transparency, among others, are maintained. Implementing good governance, NEDs of the listed corporations are accountable for regulating corporate governance standards, which involve following all regulatory issues and meeting up with the best practices. NEDs would act as primary advisors and counselors in family businesses to address the delicate balance of family objectives with the broader interests of the company (Mira et al., 2018).

d)     Risk Management

NEDs enable risk assessment of the company by performing identification and evaluation of risks of the Business. They identify risks and perform them internally from a corner as they help the company’s intangible assets and reputation be secured. NEDs, on the other hand, ensure that enterprises’ risk management practices reciprocate the strategic direction of the company and also the tolerable level of risk, just like the ability to tolerate and remain sustainable.

e)      Succession Planning

NEDs sometimes play a role in the succession planning process, mainly in family businesses where power transfer may become difficult and complicated. They make advisory decisions on leadership development, talent management, and succession plans devised to sustain the existence and stability of the corporation (Mithani, 2022). NEDs are also in the process of evaluating and selecting the candidates for key executive positions with their experience and qualifications.