Tag: Stewardship Code

Is Institutional Investor Stewardship Still Elusive?

Simon C.Y. Wong is an adjunct professor of law at the Northwestern University School of Law, and a visiting fellow at the London School of Economics and Political Science. This post is based on an article that recently appeared in the Butterworths Journal of International Banking and Financial Law.


The idea that institutional investors should behave as active, long-term oriented “stewards” has caught on globally. Five years after the launch of the landmark UK Stewardship Code, counterparts can be found on four continents (see Figure 1).

When the UK code was promulgated, I argued that institutional investor stewardship was an elusive quest due to, inter alia: ––

  • Inappropriate performance metrics and financial arrangements that promote trading and a short-term focus;
  • ––Excessive portfolio diversification that makes monitoring of investee companies challenging; ––
  • Lengthening chain of ownership that weakens an ownership mindset; ––
  • Passive/index funds that pay scant attention to corporate governance; and ––
  • Pervasive conflicts of interest among asset managers.

The fifth anniversary of the UK code provides an opportune moment to examine the notable achievements and continuing challenges in the drive to encourage institutional investors to be informed and engaged owners.


UK and EU Corporate Governance Developments — Update

John Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center. This post updates a Gibson Dunn alert by Selina S. Sagayam; the previous post, titled “From the Shareholders’ Spring to the Autumn of Activism,” is available here.

We promised to keep you updated on the legal and regulatory developments which we identified as pending developments in our Alert “From the Shareholders’ Spring to the Autumn of Activism . . . Power without Accountability — A look at the latest developments in activism and related regulations in the UK and EU” dated 10 August 2012. [1] Since that time there have been a few new developments as summarised below:

1. Institute of Chartered Secretaries and Administrators (ICSA): New Guidance for Shareholder Engagement — Issue of Consultation Paper (October 2012) [2]

In July 2012, ICSA announced that it would partner with the Investor Stewardship Working Party to develop a good practice guide to supplement (not replace) the guidance in the UK Stewardship Code (see 3 below).

Together the groups concluded that in addition to improving the process of holding engagement meetings with shareholders, the very tone of conversation between companies and their investors should change.

ICSA published its consultation paper on 12 October seeking views on:


From the Shareholders’ Spring to the Autumn of Activism

John Olson is a founding partner of Gibson, Dunn & Crutcher’s Washington, D.C. office and a visiting professor at the Georgetown Law Center. This post is based on a Gibson Dunn alert by Selina S. Sagayam; the full version, including footnotes, is available here.

This alert discusses some of the recent regulatory developments and debate in the UK and at EU level which may have an impact on institutional investors (asset managers and asset owners) and public companies and takes a look at some examples of investor activism in these jurisdictions.

I. Shareholder Spring — Recent Examples of Activism

The UK press has had a field day over the past 12 months with news of shareholder challenges or activism. In the run up to the AGM season in the spring, barely a day went by without report of shareholders flexing their muscles by taking on the boards of listed companies — the discussions and debates which typically had gone on behind closed boardroom doors had escaped into the public arena.

The issues that boards have been called up on have varied from corporate governance (with a particular focus on the highly emotive board remuneration issues), to influencing corporate events (acquisitions, disposals, takeovers) to more fundamental challenges on corporate and business strategy with a view to unlocking value for shareholders.


A Stewardship Code for Institutional Investors

Editor’s Note: Ben W. Heineman, Jr., the former GE Senior Vice President for Law and Public Affairs, is senior fellow at the Harvard Law School Program on Corporate Governance and the Harvard Law School Program on the Legal Profession, as well as senior fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs. This post is based on an article by Mr. Heineman published today in the Harvard Business Review Online.

The role of shareholders in corporate governance has become one of the hot-button issues following the credit melt-down and economic crisis. Would more active involvement by shareholders have helped to prevent or lessen the crisis?

Broadly speaking, there are those who believe that short-term institutional shareholders — with concern about making their own quarterly or annual numbers, with opaque governance and improper incentives for fund-managers — are part of the problem, and that they have been one of the causes of short-sighted, risk-indifferent behavior by financial institutions.

On the other hand, there are those who believe that longer-term institutional shareholders are part of the solution — that increased shareholder involvement in governance, not just through exercise of market power, is essential to creation of sustainable, long-term corporate value, and to holding boards of directors and senior business leaders accountable. Such shareholder proponents advocate regulation or voluntary corporate action on key issues like “say on pay” or “proxy access.”

A “third way” emerged late last year in the UK — a “Stewardship Code” for institutional investors.