Making a Case for Regulating Institutional Shareholders' Corporate Governance Roles

33 Pages Posted: 12 Jan 2017 Last revised: 3 Mar 2017

See all articles by Iris Chiu

Iris Chiu

University College London - Faculty of Laws

Dionysia Katelouzou

King's College London – The Dickson Poon School of Law; A Dickson Poon Transnational Law Institute

Date Written: January 10, 2017

Abstract

Drawing on the disconnect that currently exists between the social expectations associated with the corporate governance role of institutions and the institutions’ private interests, this article suggests that the current English legal framework does not adequately promote an optimal corporate governance role for institutions and does not meet the public interest of safeguarding investors’ long-term saving needs and sustaining a sound wealth-creating corporate sector in the long term. Our starting point is that investor-led governance, as this is aspired by UK policy-makers, is not only a matter of achieving beneficiaries’ private investment objectives through maximising long-term shareholder-value, but a matter of public interest. Next, we argue that existing regimes of private law that govern this area – first, the fabric of largely private law in contract and trust that governs the investment funds’ relationships with their beneficiaries, and, secondly, the company law and corporate governance norms that govern investment funds’ shareholder role – do not adequately take into account the public interest and, increasingly, are unable to meet the needs of private interests too. These inadequacies have only led to reinforcing a governance deficit for institutional shareholder behaviour and have left the dubious quality of institutions’ behaviour to market forces. We suggest that institutions’ shareholder behaviour should be governed in securities and investment management regulation and we outline the broad contours of how this may be achieved.

Keywords: institutional investors, corporate governance, shareholder stewardship, shareholder activism, soft law, securities regulation, investment management law

JEL Classification: G30, G38, K22

Suggested Citation

Chiu, Iris and Katelouzou, Dionysia, Making a Case for Regulating Institutional Shareholders' Corporate Governance Roles (January 10, 2017). Journal of Business Law, Forthcoming; King's College London Law School Research Paper No. 2017-13. Available at SSRN: https://ssrn.com/abstract=2896748 or http://dx.doi.org/10.2139/ssrn.2896748

Iris Chiu

University College London - Faculty of Laws ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Dionysia Katelouzou (Contact Author)

King's College London – The Dickson Poon School of Law ( email )

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

A Dickson Poon Transnational Law Institute ( email )

London, England WC2R 2LS
United Kingdom

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