Diversity of Shareholder Stewardship in Asia: Faux Convergence

Abstract

Since the UK adopted the world’s first stewardship code in 2010, stewardship codes have proliferated across Asia. Given the UK Code’s prominence, it is tempting to assume that every other stewardship code preforms the same function as the UK Code. This assumption belies the truth: all these codes – regardless of whether they have in fact drawn inspiration from the UK Code – have taken different trajectories due to each adopting jurisdiction’s distinctive institutional and legal context.

Using empirical evidence and in-depth case studies of stewardship in Japan and Singapore, this article reveals how any reception of UK-style stewardship concepts is only skin-deep. Even where the text of stewardship codes in Asia resemble the UK Code in form, their functional impact on corporate governance significantly depart from, or even run counter to, the intended functions of the UK Code. The article illustrates how stewardship codes in Asia have been used as a convenient vehicle for local governments and/or market players to achieve their own particular interests through an inexpensive, non-binding, and malleable vehicle, the formal adoption of which sends a signal of “good corporate governance” to the rest of the world. While such practices explain and contextualize the widespread adoption of stewardship codes in Asia, they also compound the challenge of drawing positive or normative conclusions from this development. The observation advanced in this article is important as leading corporate governance scholars, prominent international organizations, and market participants, have appeared content to draw such conclusions unaware that stewardship codes generally do not fulfill a similar function to the UK Code in Asia.

The article concludes by explaining how adopting globally recognized mechanisms of “good corporate governance” at a superficial formal level, and then altering their function to serve local purposes, appears to be a rising trend in corporate governance in Asia (and elsewhere). This phenomenon, which we coin “faux convergence”, calls for the re-examination of important and impactful theories about corporate governance convergence. As an initial foray, this article develops an expanded taxonomy of corporate governance convergence and lays the foundation for future research on “faux convergence”.

Keywords: shareholder stewardship, stewardship codes, institutional investors, shareholder structure, legal transplants, faux convergence, comparative corporate law, UK stewardship code, Japanese corporate governance, Singapore corporate governance, corporate law in Asia

JEL Classification: G34, K22, L22