Stewardship Codes and the Role of Institutional Investors in Corporate Governance: An International Comparison and Typology

Abstract

AbstractOver recent decades, share ownership of listed companies has concentrated into the hands of large institutional investors, challenging the traditional agency theory view of corporate governance as a mechanism to resolve the separation of ownership and control. Alternative theories have emerged to explain the role of institutional investors in corporate governance, each with a slightly different view on the motivations of these powerful shareholders and the nature of their relationship with corporate management. These theories share a common thread – the concept of investor stewardship – yet each theory applies it differently. This paper explores whether institutional investors should act primarily as stewards of their investee companies (agency theory), stewards of beneficiaries’ funds (agency capitalism), stewards of a market/economy (universal ownership) or stewards of society (stakeholder theory), and whether this varies internationally. Through an analysis of national stewardship codes, the paper determines which of these theoretical approaches are most strongly reflected in emerging stewardship policy across the world. It presents a typology of stewardship codes as a framework for understanding cross‐country variation in investor stewardship policy. Stewardship codes influence the shareholder–manager relationship and can encourage integration of wider economic and societal concerns into corporate finance.