Stewardship and Collective Action: The Australian Experience
An edited version of this paper will be published as a chapter in Global Shareholder Stewardship: Complexities, Challenges and Possibilities (Dionysia Katelouzou and Dan W Puchniak eds, Cambridge University Press, forthcoming).
35 Pages Posted: 3 Feb 2020 Last revised: 9 Jul 2020
Date Written: March 30, 2020
Institutional shareholder stewardship codes (‘stewardship codes’) exist in many jurisdictions. They reflect the growing importance of institutional shareholders in capital markets, and a belief that increased engagement by institutional shareholders improves corporate decision-making and provides protection against excessive risk-taking.
In theory, there is considerable sense in shareholders undertaking their stewardship activities collectively. By acting collectively, shareholders leverage their power, pool their resources and share costs, thereby making stewardship more feasible and less speculative. Consistently, the stewardship codes of many jurisdictions refer to, and implicitly support, collective action by institutional investors.
This paper examines the role of collective action as a form of stewardship, with particular reference to the Australian context. Australia provides favourable conditions for institutional investor stewardship and is, therefore, an interesting case study concerning the potential of collective action as a stewardship tool.
This paper’s examination of collective action in Australia reveals, however, a nuanced image of this governance practice. Evidence indicates that investors do not routinely engage in direct forms of collective action, such as forming a coalition for the purpose of intervening in a company’s governance. Instead, investors more typically leverage their collective influence through intermediary organisations, such as industry bodies and service providers that undertake behind-the-scenes engagement activities for investors.
The nuanced image of collective action emerging from the Australian experience highlights that collective action by institutional shareholders is by no means a simple governance phenomenon. The paper explores the implications of this insight for how securities and takeover laws apply to collective action, and how the issuers of stewardship codes frame their codes’ expectations regarding collective action. This analysis is relevant to policy makers, regulators and researchers who are interested in the role and regulation of collective action as a corporate governance tool.
Keywords: stewardship, institutional investors, activism, collective action, corporate governance, securities law, takeover law
JEL Classification: D70, G23, G30, G32, G34, K22, N20
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