25 - Investment Management, Stewardship and Corporate Governance Roles

Summary

The policy preference for funds and asset managers to engage in corporate governance roles is owing to policymakers’ need to galvanize ‘self-regulatory’ credibility in the corporate sector after corporate scandals. UK policymakers have since the 1990s looked to the private sector to develop self-healing techniques to address one corporate scandal or collapse after another. This is to minimize the need for regulatory intrusion and to galvanise proximate and resourceful actors such as shareholders. Relying on shareholders to ‘do the right thing’ in monitoring the corporate economy for the common good is, however, a lofty ambition and one that institutional investors have not quite lived up to and may not be well placed to fulfil. The authors argue that challenges to shareholder engagement lie in the limitations of investment management roles and their legal and regulatory frameworks, and that the investment chain, value concerns in investment management and the governance of funds pose challenges for engaged corporate governance roles for institutional investors. These concerns need to be addressed as new expectations are placed on institutional shareholders regarding ESG engagement.