Promoting the ‘Right’ Kind of Ownership: The Good, the Bad and the Passive

Abstract

A great amount of responsibility for the severity of the recent financial crisis was placed on the shoulders of the institutional shareholders, and the European Commission put forward quite candid opinions on the ‘right’ kind of ownership. Adopting the ambition of the European Commission, the article aims to discuss the concepts of a ‘right’ and a ‘wrong’ kind of ownership and what consequences it might have for the European Commission’s ambition of an increased degree of shareholder engagement that institutional shareholders are a heterogeneous group. Applying a shareholder concept based on investment modus, the article examines the available legislative tools for means to promote the ‘right’ kind of ownership as well as searches for alternative approaches to supplement the traditional legislative strategies. The article finds that shareholders with different investment modi cannot be expected to demonstrate the same kind of behaviour. Consequently, the European Commission’s approach of targeting the aggregate group of institutional shareholders is not sufficient with respect to promoting the ‘right’ kind of ownership. With shareholder investment modus as a stepping stone, the article sets forth suggestions for legislative strategies and warns against loyalty promoting measures that may tip the company’s balance of power.