Shareholder Stewardship Research Articles

The Influence of Shareholder Stewardship Regime on the Promotion of ESG Policy: Also Discussing on the Control of Greenwashing

The Influence of Shareholder Stewardship Regime on the Promotion of ESG Policy: Also Discussing on the Control of Greenwashing

Shareholder stewardship: autonomy and sociality

ABSTRACT Notwithstanding the prevalent facets of shareholder stewardship as a market concept, this paper advances the argument that there is another constitutive - though well hidden - element that is more apt to fully grasp its distinctive features and better inform market and public policy initiatives. This element regards stewardship's essence as a social norm. Indeed, what this article calls the `stewardship sociality' offers original insights into the dynamics developing between different stewards. In parallel, building upon the premises of a real entity theory of company law, this paper explores the social interactions within and between stewardship groups, by demonstrating that their autonomous action requires a minimally coercive response from law. It is thus `stewardship autonomy', as it is called in this paper, that suggests that any legal reform needs to be confined in soft law instruments that depict the sociality of stewardship within a constantly evolving global landscape.

Executive compensation: investor preferences during say-on-pay votes and the role of proxy voting advisers

AbstractShareholder say-on-pay voting allows institutional investors to influence the incentives of managers and, consequently, corporate behaviour. Surprisingly, the preferences of investors on executive compensation have been largely overlooked in the ongoing debates on the role of say-on-pay in corporate governance and the impact of shareholder stewardship on sustainable corporate behaviour. The analysis of investor disclosed explanations of say-on-pay votes in the FTSE 100 companies during 2013–2021 shows that institutional investors rely repeatedly on several dominant themes aimed at improving the incentives of corporate managers and controlling managerial rent extraction. But shareholder interests remain the core focus of say-on-pay votes, with only few investors demanding that companies reward executive directors for protecting the interests of a broader range of affected stakeholders. Additionally, most investors can be grouped into several clusters formed around the voting recommendations of proxy advisers. A group of UK-based institutional investors stands out by taking a more individualistic and diverse approach to the stewardship of executive compensation. These findings highlight the role of local investors in the oversight of executive pay, the growing influence of proxy advisers along with the increasing share of foreign institutional investors, and the influence of best practice governance codes in driving investor stewardship preferences.

Different visions of stewardship: understanding interactions between large investment managers and activist shareholders

ABSTRACT Weak incentives to invest in shareholder oversight and limited resources confine stewardship by large institutional investors. According to an influential argument, activist shareholders can offer a solution by supplying large investment (asset) managers with company-specific information. This article questions the potential informational role of traditional activist campaigns initiated by hedge funds – the most prominent group of activist shareholders – for the purposes of stewardship by large institutional investors by showing that these two groups of shareholders have different visions of stewardship with little scope for interactions. Consistent with this argument, data from the FTSE 350 companies, the UK's largest listed firms, show that associations between activist demands and the voting behaviour of top investment managers vary based on activist types and demand topics. Demands initiated by hedge funds and on business and operating matters receive less support. These findings have important implications for shareholder stewardship and for corporate law reform.

Different Vision of Stewardship: Understanding Interactions between Large Investment Managers and Activist Shareholders

The rise of a small group of investment (asset) managers with an enormous potential to influence corporate decision-making has reinforced attention to shareholder stewardship as one of the pillars of corporate governance. But weak incentives to invest in shareholder oversight and limited resources confine voting and engagement by large investment managers. According to an influential argument, activist shareholders can offer a solution by supplying large investment managers with company-specific information. This paper advances a thesis that stewardship efforts of large investment managers are unlikely to be informed by activist campaigns and offers empirical evidence and illustrative case studies supporting this claim. The paper argues that large investment managers and hedge fund activists – the most prominent group of activist shareholders – have different visions of stewardship with little scope for interactions. For large investment managers, general corporate governance and sustainability themes have priority over the traditional topics of activist demands targeting business and operating matters. Consistent with the different visions of stewardship, data from the FTSE 350 companies show that associations between activist demands and the voting behavior of the top investment managers vary based on activist types and demand topics. Activist demands initiated by hedge funds and on business and operating matters receive less support. Importantly, differences between fund groups with predominantly active or passive indexing strategies in the likelihood of opposing corporate managers in activist targeted firms are minimal. These findings offer better understanding of institutional investor stewardship and have important practical implications for building regulatory frameworks for effective stewardship.

When Harmonization is Not Enough: Shareholder Stewardship in the European Union

On 10 June 2019 the transposition and implementation deadline for the shareholder engagement rules imposed upon institutional investors and asset managers by the revised Shareholder Rights Directive (SRD II) expired. This article offers an original account of the rationale, the dynamics and the evolution of this EU-driven policy, which aims to promote long-term institutional shareholder engagement within (or in the absence of) nationally embedded frameworks. We place the SRD II shareholder engagement rules within what we see as a multi-layered regulatory landscape consisting in some Member States of soft-law stewardship codes or similar principles and guidelines, and we find—perhaps surprisingly—that the SRD II stewardship-related provisions were transposed in a literal and minimalistic fashion without any customization to divergent national specifications and despite the fact that the SRD II is only a minimum harmonization directive. We search for explanations for this transposition pattern by pointing to three key issues: the policy and institutional misfit between the harmonized rules and national regimes, the lack of a strong market demand for shareholder stewardship, and the more apt soft, flexible and mostly bottom-up norms (contained in codes or similar principles and guidelines)—rather than (semi-)hard top-down rules—in inculcating good shareholder stewardship practices. Against this background of minimalist intervention (both at the EU and national levels), we find that pre-SRD II soft stewardship initiatives have had two key positive effects. First, they increased market actors’ familiarity and preparedness with the SRD II transposed rules, thereby increasing the likelihood of effective compliance with good shareholder stewardship standards whilst maintaining national idiosyncrasies. Second, soft-law stewardship codes or similar principles and guidelines, despite their own weaknesses, are vital mechanisms of innovative norm-generation and can expand or adjust the SRD II stewardship-related rules to provide tailored shareholder stewardship frameworks and serve as a signalling function for key market actors. From this it follows that the uniform, but minimalistic, transposition of the SRD II stewardship-related rules across the EU, although welcome in shaping the minimum standards, needs to be supported by tailored, soft-law stewardship codes or similar principles and guidelines. Such a symbiosis of the harmonized SRD II shareholder engagement rules and supporting soft-law stewardship developments will allow the tailoring of shareholder stewardship norms to local conditions and the provision of guidance and meaning to the SRD II rules, while a minimum harmonization of shareholder stewardship is already secured.

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

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.

Global Shareholder Stewardship: Complexities, Challenges, and Possibilities

Within less than twenty years the idea of shareholder stewardship has become a global phenomenon. In 2010, the United Kingdom hastily released the world’s first stewardship code to cure what was perceived to be the UK’s primary corporate governance malady: rationally passive institutional investors in a country characterised by a dispersed ownership structure. Today, UK-style stewardship codes exist in 20 jurisdictions, on 6 continents, and are embedded in a panoply of legal systems, shareholder markets, and corporate cultures. This introductory Chapter to the Global Shareholder Stewardship edited book explains why shareholder stewardship around the world is far more complex than the existing literature suggests and how this complexity impacts current theories and existing practices. To explain complexity, the Chapter provides a loose taxonomy of global shareholder stewardship by categorizing stewardship along three dimensions. The first-dimension illuminates how stewardship can be conceived in a variety of ways – which makes the intellectual exercise of understanding stewardship complex and presents a challenge for policymakers to implement an idea with multiple conceptions. The second-dimension compares the formal design and content of stewardship codes globally and reveals that they have largely been modelled after the first version of the UK Code (2010/2012) – creating a mirage of global uniformity based on the UK Model of stewardship. The third-dimension demonstrates how the different origins of the codes (government codes versus institutional investor codes), a variety of mechanisms for enforcing (or not enforcing) codes, and jurisdiction-specific corporate governance factors that impact how the codes function, result in stewardship serving a variety of functions which would have never been anticipated by the original drafters of the UK Code. This complexity, which has largely been overlooked in the literature, creates distinct varieties of stewardship. Based on the distinct varieties of stewardship in jurisdictions around the world, this Chapter concludes by illuminating the challenges and possibilities of global shareholder stewardship. The taxonomy also serves as a useful lens for observing the common themes and points of intersection that make the whole of this Book greater than the sum of its individual Chapters.

Transnational Migration of Laws and Norms in Corporate Governance: Fiduciary Duties and Corporate Codes

This paper explores the intersection of transnational law with contemporary corporate governance laws and principles. Transnational law, it must be said, is a far from settled concept. There is uncertainty as to what the term actually means, and how it differs from other concepts, such as national legal ordering or global law. For early theorists, the essence of transnational law was whether it regulated conduct or events that crossed national boundaries. More recent scholarship, however, has focused not on what is being regulated, but rather on how laws and norms are transmitted between supranational and local levels.Corporate governance, with its complex array of public and private actors, fits naturally within the modern conception of transnational law as a species of law that “can no longer be viewed through a purely national lens”. Financial markets today are global and interconnected and events, such as the 2007-2009 global financial crisis and the current COVID-19 crisis, exemplify the risk of contagion across those markets.Not only can corporate governance problems transcend national boundaries, so too can their solutions, which often involve regulatory efforts that operate at a transnational level. In this environment, the corporation has taken on a greater societal role. Indeed, according to The British Academy’s influential Future of the Corporation project, the main purpose of business today is “to solve the problems of people and planet profitably”.This paper explores, from a transnational perspective, the transmission of laws and norms that are designed to constrain directors’ conduct and enhance corporate accountability. It focuses on two key examples of such accountability mechanisms —fiduciary duties and corporate codes.The paper begins with a comparative and historical examination of directors’ fiduciary duties in the United States, the United Kingdom and Australia, analyzing the extent to which the transfer of fiduciary law to these common law jurisdictions has resulted in a unified approach to directors’ duties, as is often assumed by studies such as the law matters hypothesis. The paper then moves on to discuss the modern phenomenon of codes, such as corporate governance codes and shareholder stewardship codes. Corporate codes originated in the United Kingdom in the early 1990s, but have subsequently spread throughout the world. The paper explores the global transmission of these codes, which constitute powerful “norm creators”. The rise of corporate codes epitomizes the fact that transnational legal ordering occurs “multi-directionally and recursively up from and down to the national and local levels”. It also demonstrates the importance of “who writes the rules”, because this can affect the substance of those rules and result in significant divergence between national codes.The paper assesses these various developments against the backdrop of convergence and path dependence theories in corporate governance.

Shareholder Stewardship Enforcement

One of the central problems of shareholder stewardship around the world is rendering institutional investors good monitors of their investee companies and improving their accountability to both companies and their own beneficiaries and clients. The co-existence of soft norms (stewardship codes or principles) as well as semi-hard and hard law rules across the globe raises important questions about the future of shareholder stewardship frameworks and their enforcement. In this paper, we investigate this problem focusing on the availability (or not) of strategies to enforce shareholder stewardship. We adopt a broad approach to enforcement mechanisms in the area of shareholder stewardship and set out a simple conceptual taxonomy based on three dimensions. The proposed taxonomy takes into account the nature of the norm enforcer and distinguishes between self-enforcement and third-party enforcement. In the latter we consider public, quasi-public, private, market and social norm-enforcers. These actors may or not be the standard setters of the relevant norms. We then distinguish between formal – in the sense of either (quasi)judicial proceedings or membership/adherence sanctions within stewardship networks – and informal enforcement mechanisms. Finally, we take into account the temporal dimension of enforcement and distinguish between ex ante (monitoring and deterrence) and as ex post compliance. Our starting point is that, for market actors to be able to absorb bottom-up or, most importantly, top-down regulation, flexibility in adapting to best shareholder stewardship practices is needed. Indeed, examining the enforcement mode of shareholder stewardship across 25 countries we confirm that informal enforcement by market actors is the preferred option. Looking forward, we sketch the broad contours of an optimal shareholder stewardship enforcement framework based on our proposed taxonomy. We caution against administrative sanctions and support instead a facilitating role for public and quasi-public actors in two distinct ways. First, public and quasi-public actors can facilitate shareholder stewardship enforcement via membership/adherence sanctions taking place within stewardship networks (such as public tiering) or informal mechanisms (including public information diffusion through annual reports and guidelines, public reputational mechanisms, such as ‘name and shame’, and private dialogue). Secondly, where ultimate investors have suffered damages from deficient disclosure of engagement policies, we support the introduction of a facilitating system of civil claims initiated by public or quasi-public authorities that can serve both restorative-compensatory objectives and public interests. We also advance the importance of promoting and refining enforcement by market and social actors. Our proposed enforcement framework is not intended to be applied in a uniform fashion around the world. Rather its multi-actor, multi-modal and temporally continuous fashion can adjust to any national or supranational framework.

Polanyi’s embeddedness and shareholder stewardship: a contextual analysis of current Anglo-American perspectives on corporate governance

Polanyi saw the economy as properly embedded in society and argued that the capitalist free market, in commodifying social relations of production, seeks to disembed the economy from society. The resulting lack of continuity between society and economy, he maintained, created conflict which necessarily required state intervention. The market economy, therefore, in contrast to neoclassical/neoliberal economics’ vision of an autonomous, self-regulating market, required more, not less, state intervention to sustain it than alternative, more embedded economies. This article explores this conflict in the context of a specific neoliberal claim: that institutional shareholders are capable of being good 'stewards' of the companies in which they invest. Utilising Polanyi’s embeddedness, this article assesses the 'stewardship' approach as it is manifested in the US and in the UK. This approach is posited on a vision of a disembedded, self-regulating market. Putting it into practice is thus a retrograde step which will only exacerbate the problems created by the market-based corporate governance strategies which have prevailed since the late 1970s onwards.

Shareholder Stewardship in the Netherlands: The Role of Institutional Investors in a Stakeholder Oriented Jurisdiction

We study institutional investors’ voice in the Netherlands, focusing on shareholder voting in particular. The Dutch Stewardship Code, developed by institutional investor platform Eumedion, came into force in January 2019, emphasises engagement and responsibilities of institutional investors in Dutch listed companies and should further boost the engagement with the investees. With a new dataset, we observe that institutional investors critically consider (non) current voting items which could negatively affect shareholder rights, like some of the amendments of the articles of association as well as remuneration packages of directors that contain insufficient or inappropriate incentives. Compared to other investors, institutional investors show significantly higher opposition rates. Particularly, Eumedion members show even higher opposition rates than other institutional investors. However, there may still be room for a stronger focus on the activities and outcomes of stewardship, including changing the behaviour of companies, and not just policy statements. An edited version of the paper will be published as a chapter in “Global Shareholder Stewardship: Complexities, Challenges and Possibilities (Dionysia Katelouzou & Dan W. Puchniak eds, Cambridge University Press, forthcoming)

Shareholder Stewardship in India: The Desiderata

The goal of this paper is to examine whether the stewardship code, which emanated in circumstances that are specific to the United Kingdom (UK), is capable of transposition to other jurisdictions that experience different corporate structures as well as legal and institutional mechanisms. It does so in the context of India, which has introduced a series of stewardship codes for different types of institutional investors. This paper cautions against the wholesale adoption of a UK-style stewardship code in India due to the specific factors that are at play in that jurisdiction, and instead calls for a sui generis approach to stewardship. At least three reasons necessitate such a departure from the UK stewardship approach. First, while the prominence of institutional investors in the UK in the context of companies with dispersed ownership inspired the UK-style stewardship code, the roles and challenges that institutional investors experience in India in the context of concentrated shareholding are considerably different. Second, the goals of stewardship vary from the UK, where the focus is on the long-term financial sustainability of beneficiaries of institutional investors, to India, which follows a pluralistic stakeholder approach to corporate law. Third, the traditional mode in the UK of using a code-based soft law approach to implementation of stewardship is unsuitable to the Indian circumstances that steadfastly rely on mandatory rules in the form of hard law in the corporate arena.

Stewardship and Collective Action: The Australian Experience

Institutional shareholder stewardship codes (‘stewardship codes’) exist in many jurisdictions. They reflect the growing importance of institutional shareholders in capital markets, and a belief that increased engagement by institutional shareholders improves corporate decision-making and provides protection against excessive risk-taking. In theory, there is considerable sense in shareholders undertaking their stewardship activities collectively. By acting collectively, shareholders leverage their power, pool their resources and share costs, thereby making stewardship more feasible and less speculative. Consistently, the stewardship codes of many jurisdictions refer to, and implicitly support, collective action by institutional investors. This paper examines the role of collective action as a form of stewardship, with particular reference to the Australian context. Australia provides favourable conditions for institutional investor stewardship and is, therefore, an interesting case study concerning the potential of collective action as a stewardship tool. This paper’s examination of collective action in Australia reveals, however, a nuanced image of this governance practice. Evidence indicates that investors do not routinely engage in direct forms of collective action, such as forming a coalition for the purpose of intervening in a company’s governance. Instead, investors more typically leverage their collective influence through intermediary organisations, such as industry bodies and service providers that undertake behind-the-scenes engagement activities for investors. The nuanced image of collective action emerging from the Australian experience highlights that collective action by institutional shareholders is by no means a simple governance phenomenon. The paper explores the implications of this insight for how securities and takeover laws apply to collective action, and how the issuers of stewardship codes frame their codes’ expectations regarding collective action. This analysis is relevant to policy makers, regulators and researchers who are interested in the role and regulation of collective action as a corporate governance tool.

Global Shareholder Stewardship: A Conference Report

On 20-21 September 2019, the first Global Shareholder Stewardship conference took place at King’s College London. The conference was co-hosted by the Dickson Poon School Law, the Transnational Law Institute (King’s College London) and the European Corporate Governance Institute (ECGI) and funded by the Dickson Poon School of Law (King's College London), the Transnational Law Institute (King's College London), the British Academy's Partnership with the Department for Business, Energy and Industrial Strategy, and the ESRC Social Science Impact Fund. The conference co-organisers Dr Dionysia Katelouzou (Dickson Poon School of Law, King’s College London) and Dr Dan Puchniak (Faculty of Law, National University of Singapore) gathered a collection of academics, policymakers and market players to share experiences, enhance dialogue, disseminate good practice, guide scholarship, and shape future stewardship policy through evidence-based recommendations. This report provides a summary of the key findings of this conference. The overarching aim of the conference was to examine and compare national, supranational, and international stewardship principles, elaborate institutions’ investment practices, showcase the impact of soft and hard regulation on current and evolving stewardship practices and understand the interaction of private and public actors in generating public policy. The findings will, therefore, contribute to current corporate governance debates and policymaking at national, supranational and international levels and will inform a wide range of academic and non-academic beneficiaries, including institutional investors, companies, and other stakeholders.

Shareholder Stewardship: Global Trends and Challenges

The global financial crisis of 2007-8 gave definitive light to some worrying cracks that for years have plagued the global economy. In the UK, the remedy to the planetary collapse took the form of the stewardship code, issued in 2010 by the Financial Reporting Council. This initiative, as the name suggests, was nothing more than the material representation of stewardship, a doctrine founded on the rooting of increasingly virtuous corporate governance conduct thanks to the active contribution of the various parties involved, from managers to service providers, from financial intermediaries to institutional shareholders. The latter, in particular, were considered one of the fundamental factors of the British crisis, because of their lack of oversight of the investment dynamics performed by the respective investee companies. The UK was therefore a pioneer in the launch of the shareholder stewardship, the example of which was followed, in the following decade, by numerous world realities. However, while in the UK stewardship was used as a crisis-repelling technique, in other contexts the values expressed by this doctrine were used for the pursuit of goals sometimes far from the British prototype. Through the creation of an original taxonomy based on a cross-analysis of the various stewardship tools and the individual domestic contexts in which they were inserted, it was possible to appreciate this wide diversification. A variety in terms of content, objectives, results, and involved parties, also favored by the way stewardship is expressed. The latter, in fact, found the main propagation vehicle in soft-law models, which, thanks to their inherent malleability, made it possible to adapt a fundamentally unique doctrinal model to the many and varied national circumstances. Nevertheless, the positive flexibility of soft law contrasts with the general difficulty of enforcing it, which is the cause of a wide debate which is dealt with in the course of the research. The research also takes into account the sometimes-unexpected results of stewardship and not pertaining to the economic spectrum, originally not planned at the time of the adoption of its values. In particular, the analysis seems to confirm that the adoption of an instrument designed to bring benefits in terms of corporate governance conduct can, at the end of the day, create the conditions for achieving further objectives. In the light of the elements considered, and subsequent to the proposal of some reform plans from time to time adaptable to each individual case, the conclusion is in favor of the adoption of stewardship values through soft-law models. But with one premise. It is not the intention of the writer to suggest that the solution of the problems of corporate governance that led the planet to collapse can lie exclusively in soft-tools that are impossible by nature to be effectively enforced. Soft law can never replace hard law in the role of regulating human dynamics. However, years of history have taught how impositions and constraints more often lead to entrenchment rather than openness. Therefore, even in the light of the results that begin to be admired, it seems reasonable to insist on the refinement of such soft(-law) stewardship tools rather than in their disposal.

Encouraging Sustainable Investment in South Africa: CRISA and Beyond

This chapter starts with an exposition of the context of shareholder stewardship in South Africa and the institutional investor landscape. This is followed by a discussion of the two main soft law initiatives that support shareholder stewardship in South Africa, namely the Code for Responsible Investing in South Africa (‘CRISA’) and the King IV Report on Governance for South Africa (‘King IV’). These soft law initiatives are extensively supported by hard law provisions, especially for retirement funds and their service providers, but also for other institutional actors. Brief mention is made of the social and ethics committee of certain investee companies and the FTSE/JSE Responsible Investment Index. The chapter concludes with some recommendations for the improvement of the current system.

Diversity of Shareholder Stewardship in Asia: Faux Convergence

Since the UK adopted the world’s first stewardship code in 2010, stewardship codes have proliferated across Asia. Given the UK Code’s prominence, it is tempting to assume that every other stewardship code preforms the same function as the UK Code. This assumption belies the truth: all these codes – regardless of whether they have in fact drawn inspiration from the UK Code – have taken different trajectories due to each adopting jurisdiction’s distinctive institutional and legal context. Using empirical evidence and in-depth case studies of stewardship in Japan and Singapore, this article reveals how any reception of UK-style stewardship concepts is only skin-deep. Even where the text of stewardship codes in Asia resemble the UK Code in form, their functional impact on corporate governance significantly depart from, or even run counter to, the intended functions of the UK Code. The article illustrates how stewardship codes in Asia have been used as a convenient vehicle for local governments and/or market players to achieve their own particular interests through an inexpensive, non-binding, and malleable vehicle, the formal adoption of which sends a signal of “good corporate governance” to the rest of the world. While such practices explain and contextualize the widespread adoption of stewardship codes in Asia, they also compound the challenge of drawing positive or normative conclusions from this development. The observation advanced in this article is important as leading corporate governance scholars, prominent international organizations, and market participants, have appeared content to draw such conclusions unaware that stewardship codes generally do not fulfill a similar function to the UK Code in Asia. The article concludes by explaining how adopting globally recognized mechanisms of “good corporate governance” at a superficial formal level, and then altering their function to serve local purposes, appears to be a rising trend in corporate governance in Asia (and elsewhere). This phenomenon, which we coin “faux convergence”, calls for the re-examination of important and impactful theories about corporate governance convergence. As an initial foray, this article develops an expanded taxonomy of corporate governance convergence and lays the foundation for future research on “faux convergence”.

Singapore’s Puzzling Embrace of Shareholder Stewardship: A Successful Secret

In the wake of the 2008 Global Financial Crisis, the UK created the first stewardship code which was designed to transform its rationally passive institutional investors into actively engaged shareholders. In the UK corporate governance context, this idea made sense. Institutional investors collectively own a sizable majority of the shares in most of the UK’s listed companies. In turn, if the UK stewardship code could incentivize them to effectively monitor management – to act as “good shareholder stewards” – the managerial short-termism and excessive risk-taking, which were identified as contributors to the GFC, could be avoided. The UK’s idea to adopt a stewardship code sparked a global shareholder stewardship movement. Unsurprisingly, Singapore as a corporate governance leader in Asia, adopted a stewardship code. Based on a superficial textual analysis, the Singapore Code appears to be a near carbon-copy of the UK Code. However, this article, which provides the first in-depth comparative analysis of stewardship in Singapore, demonstrates how Singapore has turned the UK model of stewardship on its head. Rather than enhancing the shareholder voice of institutional investors, shareholder stewardship has been used in Singapore as a mechanism for entrenching its successful state-controlled and family-controlled system of corporate governance. This development has been entirely overlooked by prominent international observers and would be beyond the wildest imaginations of the original architects of the UK Code. Viewed through an Anglo-American lens, this use of “stewardship” may suggest that Singapore has engaged in a corporate governance sham. However, we argue the opposite: it appears to be a secret to Singapore’s continued corporate governance success and provides a much-needed Asian (as opposed to Anglo-American) model of good corporate governance for Asia.

Shareholder Engagement by Large Institutional Investors

While shareholder engagement has captured much attention recently, the evidence on the role of large institutional investors remains relatively scarce. Large asset managers have become an increasingly powerful force since the financial crisis of 2008, with the top 20 managers controlling together almost 22% of votes in the FTSE 350 companies. The prevailing view, however, holds that large fund families avoid active shareholder engagement. This study aims to contribute to the ongoing discussions about the stewardship role of large institutional investors by identifying the biggest investors in UK listed companies and revealing how these institutional investors behave and vote at shareholders’ meetings. The results show growing shareholder stewardship efforts by large asset managers, including index (often described as passive) fund managers, over the last five years and thus challenge some common assumptions about large institutional investors. The study also reveals that the primary target of these engagement efforts has been corporate governance standards, rather than business strategy or performance. These findings have important implications and will better inform discussions and efforts to build regulatory frameworks for effective shareholder engagement in publicly-traded companies. The results suggest that regulators need to remain realistic by not placing impractical engagement expectations on large institutional investors alone. To go beyond corporate governance engagement, regulatory efforts need to take a broader approach towards investor stewardship and shareholder rights. In particular, hedge funds and other shareholder activists can improve corporate strategy and performance engagement by supplying large asset managers with firm-specific information through activist demands.