How Conflicts of Interest Thwart Institutional Investor Stewardship

Abstract:     

This article examines conflicts of interest in the investment industry and remedies to enable institutional investors to be more active on corporate governance matters. The key points are: Conflicts of interest at investment firms arise at three levels – institution, individual, and group – all of which can impede their willingness and ability to engage investee companies actively on corporate governance matters; Resolving these conflicts requires strong remedies, ranging from their elimination to outsourcing voting decisions to independent third parties to establishing the right organisational culture; If existing conflicts of interest are left unchecked, efforts to promote institutional investor stewardship will falter and the “absentee landlords” share-ownership model will likely prevail.

Number of Pages in PDF File: 2

Keywords: Institutional investors, conflicts of interest, stewardship, corporate governance

JEL Classification: G30, G34