Something old, something new: cultivating institutional investor engagement through shareholder stewardship

TY - CHAP

T1 - Something old, something new: cultivating institutional investor engagement through shareholder stewardship

AU - Katelouzou, Dionysia

PY - 2024/11

Y1 - 2024/11

N2 - Institutional investor engagement, ranging from sporadic voting and incidental forms of managerial monitoring to more systematic and strategic forms of shareholder activism, including ‘hedge-fund-style’ activism, has long been debated. The most recent round of this debate has been sparked by the policy development of shareholder stewardship. This chapter situates institutional investor engagement within a historical continuum of differing contextual views on the role of institutional shareholders in corporate governance and argues that micro-level shareholder stewardship, that is how institutional investors monitor and engage with specific companies in their portfolios, is a cultivation of ‘older’ notions of shareholder engagement founded on a tripartite rationale of: (i) firm-level shareholder engagement to improve long-term company (and portfolio) performance on the basis of the private agency paradigm of corporate governance, (ii) with a commitment to the ultimate beneficiaries’ investment needs on the basis of the private trusteeship relationship that governs the investment funds’ relationships with their beneficiaries, and (iii) with the overall aim to serve public interests, including the saver needs and more recently mitigation of climate and other externalities. The Chapter identifies the canonical micro-level steward in funds which specialize in firm-specific engagements. Hedge-fund-style activists are prime candidates in this regard and fresh empirical evidence are provided on the scale of hedge-fund style activism worldwide. While not all hedge-fund-style activists engage with companies with a sense of stewardship duty, this chapter provides empirical evidence from stewardship disclosures that there is a breed of investors – the activist shareholder stewards – who can fill the ‘stewardship bill’.

AB - Institutional investor engagement, ranging from sporadic voting and incidental forms of managerial monitoring to more systematic and strategic forms of shareholder activism, including ‘hedge-fund-style’ activism, has long been debated. The most recent round of this debate has been sparked by the policy development of shareholder stewardship. This chapter situates institutional investor engagement within a historical continuum of differing contextual views on the role of institutional shareholders in corporate governance and argues that micro-level shareholder stewardship, that is how institutional investors monitor and engage with specific companies in their portfolios, is a cultivation of ‘older’ notions of shareholder engagement founded on a tripartite rationale of: (i) firm-level shareholder engagement to improve long-term company (and portfolio) performance on the basis of the private agency paradigm of corporate governance, (ii) with a commitment to the ultimate beneficiaries’ investment needs on the basis of the private trusteeship relationship that governs the investment funds’ relationships with their beneficiaries, and (iii) with the overall aim to serve public interests, including the saver needs and more recently mitigation of climate and other externalities. The Chapter identifies the canonical micro-level steward in funds which specialize in firm-specific engagements. Hedge-fund-style activists are prime candidates in this regard and fresh empirical evidence are provided on the scale of hedge-fund style activism worldwide. While not all hedge-fund-style activists engage with companies with a sense of stewardship duty, this chapter provides empirical evidence from stewardship disclosures that there is a breed of investors – the activist shareholder stewards – who can fill the ‘stewardship bill’.

KW - shareholder engagement, shareholder stewardship, shareholder activism, institutional investors, voluntary disclosure, corporate governance

M3 - Chapter

SN - 9781009360760

BT - Board-Shareholder Dialogue Policy Debate, Legal Constraints and Best Practices

A2 - Enriques, Luca

A2 - Strampelli, Giovanni

PB - Cambridge University Press, Cambridge

ER -