Short-termism, ownership and implications for investor stewardship.

Abstract

Institutional investors play a central role in corporate finance and ownership. But their direct role in corporate governance has received only limited attention, focused mainly on shareholder activism, with its focus on strategic change and rapid improvement in corporate performance. Following the financial crisis, however, policy has sought ways to counteract the perceived short-termism in equity markets. It has cast a spotlight on the role of investors, not least in the UK, with its Stewardship Code (introduced in 2010 and revised in 2012) and in related moves in a number of European countries and by the European Union. In the US too, policy has paid special attention to questions of proxy access and enhancing shareholder rights to voice. They share a concern to evoke the spirit of the ‘universal owner’, interested in both the long term and in the broad development of the economy as a whole. This paper examines developments in the policy against the backdrop of changing practices and structures, raising doubts about the premises of the policy direction and discussing the promises and drawbacks alternatives within other forms of ownership.