Can a Global Legal Misfit be Fixed? Shareholder Stewardship in a Controlling Shareholder and ESG World

Abstract

As demonstrated by one of the authors elsewhere, UK-style shareholder stewardship is a ‘global legal misfit’ because it was designed for a jurisdiction with dispersed shareholding where institutional investors collectively control a majority of the shares; however, it has been transplanted into jurisdictions where controlling shareholders predominate and institutional shareholders are collectively minority shareholders. This Chapter addresses an important question that naturally flows from this reality: what ought to be the role of shareholder stewardship in a world dominated by controlling shareholders? This question is answered by analyzing the effectiveness of shareholder stewardship as a mechanism for advancing ESG in controlled jurisdictions – especially when compared to other viable alternatives. It then operationalizes this analysis by evaluating the effectiveness of the only stewardship code in the world – the Singapore Family Code – that has attempted to reorient UK-style stewardship to a controlling shareholder environment. This Chapter concludes that the prospects for shareholder stewardship in jurisdictions where controlling shareholders predominate will likely be limited. Although a reoriented approach to shareholder stewardship may play a role in nudging controlling shareholders towards ESG, hard law will likely be necessary to bring about real change. Unfortunately, this suggests that shareholder stewardship may be used as a ‘smoke screen’ by controlling shareholders and governments to send a formal signal that they are addressing ESG in controlled jurisdictions – when, in reality, functional change will be limited in practice.