Good Activist/Bad Activist: The Rise of International Stewardship Codes

Abstract

This paper focuses on recent trends in shareholder participation in corporate governance in a number of major developed countries. Conflicting attitudes toward shareholder participation, especially in the US, have colored the underlying debate about the effects of shareholder influence on corporate governance. While a distinctly negative view of shareholder participation and activism underpins much recent US debate on this topic, a powerful alternative narrative about the benefits of increased shareholder engagement in corporate governance has gained traction in many other jurisdictions.

Shareholder Stewardship Codes represent a particularly important manifestation of this positive view of shareholder engagement. These codes, which originated in the U.K. following the global financial crisis, are now proliferating throughout the world, especially in Asia. This paper examines similarities and differences in international Stewardship Codes, including the Investor Stewardship Group’s Framework for US Stewardship and Governance, which was introduced in the United States in early 2017. As the paper shows, this recent US development has not occurred in a vacuum. Rather, it is part of a sustained international push for greater investor involvement in corporate governance and exemplifies the increasing globalization of corporate governance.

These developments and competing narratives concerning the role of shareholders in corporate governance have significant regulatory implications. In particular, they pose future challenges to regulators in seeking to differentiate between “good activists” and “bad activists”.

Keywords: corporate governance, shareholder participation, shareholder activism, institutional investors, stewardship codes

JEL Classification: D70, G23, G30, G32, G34, K22, N20