Institutional Investor Engagement: How to Create a 'Stewardship Culture'

Lex Research Topics in Corporate Law & Economics Working Paper No. 2018-1

TILEC Discussion Paper No. 2018-006

46 Pages Posted: 9 Jan 2018 Last revised: 5 Feb 2018

See all articles by Mark Fenwick

Mark Fenwick

Kyushu University - Graduate School of Law

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Date Written: February 2018

Abstract

In order to encourage meaningful and constructive engagement, countries have promulgated and published stewardship codes. The distinctiveness of such codes is the attempt to create more responsible and purposeful investor engagement. In particular, institutional investors must be viewed – and view themselves – as “stewards” of a company.

This paper argues that stewardship codes do matter. Looked at in isolation, the impact of regulatory initiatives aiming to mobilize institutional investors can often seem underwhelming in their effects and might easily be perceived as failing, in some sense. In general, regulatory interventions don't seem to have an immediate or significant impact on the incentives and actions of investors.

Nevertheless, the process of designing and then implementing regulatory measures can play a crucial role in triggering interest in, and discussion around, the need for a more engaged relationship between institutional investors and the companies that they own. It is in this less formal mode — via a process of “spotlighting” — that regulation can play a crucial role in fostering a corporate culture in which all of the stakeholders in a company become more engaged with senior management.

Keywords: corporate governance, engagement, institutional investors, regulation, shareholders, stewardship codes

JEL Classification: D20, G18, G34, K22, L21

Suggested Citation

Fenwick, Mark and Vermeulen, Erik P.M., Institutional Investor Engagement: How to Create a 'Stewardship Culture' (February 2018). Lex Research Topics in Corporate Law & Economics Working Paper No. 2018-1; TILEC Discussion Paper No. 2018-006. Available at SSRN: https://ssrn.com/abstract=3098235 or http://dx.doi.org/10.2139/ssrn.3098235

Mark Fenwick

Kyushu University - Graduate School of Law ( email )

6-19-1 Hakozaki,
Fukuoka
Japan

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

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