In 2010, when the United Kingdom enacted the world’s first stewardship code (UK Code), the impetus behind it was clear. Institutional investors had come to hold a substantial majority of the shares in UK listed companies. However, most institutional investors lacked the incentive to use their shareholder power to monitor management. In turn, they were branded as “rationally passive” shareholders. As the theory goes, when left unmonitored by institutional investors who collectively controlled the UK’s shareholder float, the management of UK listed companies engaged in excessive risk-taking and short-termism behaviors which were identified as significant contributors to the 2008 Global Financial Crisis (GFC). Thus, the original objective, or intended function, of the UK Code was to motivate institutional investors to become responsible and engaged shareholders. Specifically, its aim was to incentivize them, through the use of soft law, to act as “good stewards” by exercising their control over listed companies through their collective voting rights. The ultimate goal was to mitigate the excessive risk-taking and short-termism by corporate management that might have otherwise led to another financial crisis.

Since the adoption of the UK Code in 2010, stewardship codes and similar initiatives have proliferated throughout Asia. Asia’s largest developed economy (Japan), Asia’s tiger economies (Hong Kong, Singapore, South Korea, and Taiwan), and two of Asia’s most important high-growth economies (Malaysia and Thailand) have all adopted stewardship codes. Asia’s largest economy (China) recently inserted provisions into its revised corporate governance code to promote shareholder stewardship among institutional investors. In addition, several of Asia’s most important developing economies (including India and the Philippines) have placed the creation of a stewardship code on their corporate governance agendas.

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