Shareholders and Corporate Scrutiny: The Role of the UK Stewardship Code

Abstract

The UK represents the most detailed initiative to date to develop a code which puts new responsibilities on the investor and investee communities. The UK Stewardship Code is an important attempt to redress the balance in the corporate governance matrix and although similar efforts have taken place in other markets, such as France and the Netherlands, the Code is the first of its type in the world. Not only of relevance to the UK, this is an important development for other countries too. The Code is said to offer a groundbreaking way forward through a background of shareholder apathy and indifference toward matters of governance. By and large, it intends to advance shareholder surveillance of companies, viewed by some as the missing control that led to the financial crisis. However, modern investment management practices make it particularly difficult for a committed, long-term ownership mindset to exist. This article raises the question of whether a more systematic and continuous relationship between institutional shareholders and management is about to evolve through the Code and discusses the market failures and structural limitations that prevent investors from becoming effective stewards. Whilst the market failures and structural impediments of the Code can cause concern, there are possible remedies that can help to provide a more favourable setting for stewardship. Consequent to this analysis, the article argues that there are more logical alternatives to company democracy and investor engagement than the generalist duties of the UK Stewardship Code.