Institutional investors: the vote as a tool of governance

Abstract

Institutional investors are increasingly expected to engage with their investee companies to try to help ensure that the investee companies have an appropriate corporate governance structure and that they operate according to corporate governance best practice. There are a number of ‘tools of governance’ which institutional investors might utilise including constructive dialogue and voting. In this paper, the growth of institutional investors is discussed together with the development of the vote as one of the most powerful means that institutional investors have at their disposal. The cases of two of the UK’s largest and most active institutional investors are discussed to show how the vote is used in practice. The resolutions which tend to be the most contentious are those relating to the appointment/re-election of directors and board composition; remuneration packages and incentive schemes; and strategic issues that may impact on shareholders’ rights/ownership interests. The paper also contains an analysis of the resolutions which occur most frequently together with the average levels of dissent on such issues in various European countries: Austria, Belgium, France, the UK, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland. The barriers to voting that may arise are examined; such barriers include control enhancing mechanisms which are prevalent in many European countries as well as on a wider global basis.

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Notes

  1. 1.

    AAF 01/06: Assurance reports on internal controls of service organisations made available to third parties; SAS 70: Statement on Auditing Standards No.70: Reports on the processing of transactions by service organizations.

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Acknowledgments

This paper was first presented at the International Conference on Shareholder Rights, Shareholder Voting and Corporate Performance held at the University of Cagliari in March 2008. The author thanks participants for their helpful comments.

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Correspondence to Chris Mallin.

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Mallin, C. Institutional investors: the vote as a tool of governance. J Manag Gov 16, 177–196 (2012). https://doi.org/10.1007/s10997-010-9137-2

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Keywords

  • Corporate governance
  • Institutional investors
  • Voting
  • Resolution
  • Activism
  • Engagement
  • Control enhancing mechanisms
  • ‘Say on pay’