Knocking at the Boardroom Door: A Transatlantic Overview of Director-Institutional Investor Engagement in Law and Practice

Abstract

Under the current context of (re)concentrated ownership, institutional shareholders are expected to play a more active role in corporate settings in making managers more accountable and urging them to favour a long-term view. Calls from institutional investors for engagement with the board have grown and private dialogue with directors is now an important instrument of institutional investor activism. In spite of this favourable trend, director-shareholder dialogue is still problematic. Public disclosure and insider trading rules set legal constraints on board-shareholder engagement. However, the reach of these constraints should not be overstated, as they do not appear to ban outright all private dialogue between directors and shareholders. In this regard, recommendations within corporate governance and stewardship codes, and from practitioners, have played a major role in developing a practical framework for director-shareholder dialogue that seeks to prevent the violation of insider trading and public disclosure rules, and to make dialogue more effective. Against this backdrop, this article will provide a comparative transatlantic overview of recent developments in the area of director-institutional shareholder dialogue in the US and in Europe with the aim of assessing the effective reach of legal constraints on board-shareholder dialogue under current legislation, and considering some practical solutions offered by corporate governance and stewardship codes that could facilitate board-shareholder engagement and enhance its effectiveness.