Does Corporate Governance Exclude the Ultimate Investor?

Abstract

Does UK corporate governance exclude the ultimate investor? Over the late 20th century, most shareholding shifted from individuals to institutions. ‘Soft law’ indicates these institutional intermediaries must act in the interests of the ultimate client and follow instructions on how to vote shares. But case law and legislation is complex. This article explores the relations of ultimate investors, and their representatives, to asset managers in four main contexts: pensions, mutuals, life insurance, and retail shareholding. Properly understood, institutionalised shareholding has not displaced basic principles of accountability that soft law suggests: financial intermediaries should follow instructions on how to cast shareholder votes, unless this default rule is ‘pre-empted’ by a representative voting structure. This does not mean the law is in a satisfactory state. The law requires more clarification, to guard against the classic dangers of ‘negligence and profusion’ when intermediaries are in charge of ‘other people’s money’.

Keywords: governance, ultimate investor, voting, pension trust, beneficiary, mutual fund, life insurance

JEL Classification: G30, K22