Institutional Shareholder Activism in China: Law and Practice

Abstract

The rise of institutional investor activism is changing the corporate governance landscape in China, as it has in the US, UK and a few other economies. The article examines the legal and regulatory environments in which Chinese financial institutions act as shareholders and participate in the governance of their portfolio companies.

The article challenges the conventional wisdom that minority shareholders in Chinese listed companies, in the face of the expropriation by the state-controlled majority shareholders, have been invariably powerless and, in most cases, passive. The article documents the unprecedented level of institutional shareholder activism in China. It shows that institutional activism has brought some corporate governance rules into actual practice in the marketplace, and helped raise corporate governance standards in China.

The article argues that Chinese legal rules designed to protect minority shareholders have the unintended effect of deterring institutional shareholders from owning stakes substantial enough to influence corporate decision-making. The policy implications of the article are significant: There is a tension between the policy goals of encouraging institutional participation in corporate governance and of protecting minority shareholders.

Keywords: China, institutional shareholder, activism, corporate governance