Shareholder engagement is pivotal in corporate governance, evolving beyond formal resolutions to impact business decisions. This chapter unveils the typically undisclosed dynamics of board-shareholder engagement through a survey of 171 SEC-registered corporations, targeting corporate secretaries, general counsel, and investor relations officers. The survey was complemented by a review of the disclosure on shareholder voting and engagement included in proxy statements filed by Russell 3000 companies during the 2018–2022 meeting seasons. Larger and mid-sized companies more frequently engage than smaller organizations. Engagement, often with major asset managers, can take a confrontational turn, particularly with hedge funds at smaller firms. Topics include executive incentive plans, ESG metrics, GHG emission reduction, workforce diversity, pay equity, and political spending. The study reveals that engagement significantly influences corporate practices, leading to changes, withdrawal of proposals, alterations in proxy votes, and the inclusion of engaged shareholder-nominated directors in management slates.

Capital market, regulatory and technological developments have created investor appetite and capacity for engagement with public companies. Our paper explores key engagement mechanisms and techniques employed by public company shareholders. First, shareholder-company engagement is a multi-dimensional, evolving phenomenon. Shareholders use a range of techniques including shareholder meetings, behind-the-scenes interactions, public campaigns, and online technologies. Second, shareholders mix and match different engagement techniques to leverage governance influence. Third, shareholders increasingly undertake their engagement activities collectively, highlighting growing capacity to overcome traditional collective action challenges. Finally, the shareholder meeting remains an important engagement mechanism. Its formal, in-person and public nature sets it apart from other mechanisms and gives it unique potential as a forum for scrutiny and accountability. Although low attendance rates indicate that shareholders do not routinely utilise the meeting to maximum effect, it is better conceived as having contingent significance because its potential as an accountability mechanism can prove critical when a company experiences serious governance problems.

Corporate governance debates have undergone a fundamental shift, with environmental,social and governance (“ESG”) issues coming to the forefront of decision-making by boards, executives and shareholders. Across a spectrum ofstakeholders, companies and their boards face pressure to incorporate ESG considerations into their business strategies, including strategies around merger and acquisition (“M&A”) transactions. This chapter addresses how the growth of ESG is poised to affect board and shareholder engagement in M&A. For boards evaluating M&A deals, ESG factors are emerging as critical to all aspects of dealmaking, including selection of targets and buyers, due diligence, governance and integration, and financing. The ESG pressures on M&A deals also influence corporate governance in M&A – implicating board strategy and oversight in M&A, as well as shareholder engagement in M&A. In an ideal world, ESG information can help enhance board and shareholder decision-making around M&A. Yet, whether ESG considerations are likely to do so remains uncertain.

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.

Ownership structure changes, like capital concentration in funds, theoretically shouldn’t alter passive incentives, given fee competition and single-company engagement costs. Free rider problems also contribute to passivity. Despite these, recent factors boosting involvement include: (i) the influence of major investment funds, (ii) growing use of proxy advisors by institutional investors, (iii) political pressure and stewardship considerations, and (iv) collaboration, especially among hedge funds. ESG investing could be a game changer due to millennial demand, systemic risk reduction, and fee opportunities. This prompts institutional investors to shift from passive to active engagement, fostering collaboration. New collaboration forms include: (i) among major funds, (ii) between hedge and ESG funds (wolf pack activism), (iii) among non-activist institutional investors, and (iv) on new platforms like Climate Action100+ and PRI. Legal risks and obstacles, such as acting in concert, insider trading rules, and antitrust laws, are explored, with suggestions to enhance collaboration opportunities and ways of bolstering opportunities for collaboration.

In the United States, institutional investors, such as BlackRock, Vanguard, and State Street, have been instrumental in advancing ESG and related stakeholder concerns. Through open letters and active engagement, these investors have outlined their expectations regarding ESG practices, while providing guidance on disclosure practices that ensure corporations appropriately address ESG. Institutional investors also have utilized the shareholder proposal process to encourage corporations to address critical ESG concerns. Nonetheless, critics argue that linking ESG and stakeholder interests to investors’ profit motives may hinder progress, limiting any focus on ESG solely to issues that can be linked to measurable economic benefits. This chapter offers a more optimistic perspective. It argues that shareholders have been strong advocates for stakeholders, moving the needle around several critical ESG issues including disclosure, board oversight, and increased corporate commitment to specific ESG goals. This chapter further argues that shareholders may be best positioned to ensure that corporations maintain a long-term focus on ESG and other stakeholders. Thus, rather than hindering progress, this chapter posits that the connection between ESG and financial returns may enhance corporate focus on ESG.

In recent years, shareholder driven climate activism has focused attention on “universal owners and managers” – asset owners and managers with significant stakes in all or nearly all public companies. Advocates push these asset managers to prioritize enhancing overall portfolio value over maximizing individual company value, promoting "systemic stewardship" even when it involves sacrificing individual firm value for the benefit of the overall portfolio. This chapter assesses whether universal owners can and should pursue such a strategy. Our analysis is pessimistic for three main reasons. First, inducing individual portfolio firms to reduce their carbon output to address environmental concerns may trigger a competitive response that will reduce gains for other portfolio companies. Second, current corporate law has a "single firm focus" that conflicts with the potential "multi-firm focus" of large portfolio investors and exposes corporate fiduciaries to potential liability if they sacrifice firm value for the benefit of investors’ other holdings. Third, universal owners, managing diverse portfolios for various clients, face conflicts with fiduciary duties and their multi-client business model when implementing a tradeoff strategy. Given these challenges, systemic stewardship strategies that entail substantial tradeoffs are unlikely to have any significant impact on mitigating climate change.

This introductory chapter provides the reader with data on institutional investors’ role in the governance of listed companies in the US and Europe. Drawing from various databases, we sketch out the phenomenon of share ownership reconcentration in the hands of institutional investors across jurisdictions, tracking the nationality and ownership of the largest asset managers and draw some implications therefrom. In particular, we look into whether divergence in ownership patterns (the presence vs absence of a controlling shareholder) and the identity and characteristics of asset managers may lead to divergence in the incentives structure for, and the focus of, shareholder engagement on the two sides of the Atlantic. Finally, we provide the reader with a roadmap of the book contents.

In critiquing Prosperity, Paul Davies raises five objections. These are: (a) inclusion of social objectives in mandatory business purpose statements; (b) the assertion that the envisaged adoption of purpose statements is “embarrassingly simple”; (c) use of the law to shield directors from adverse reactions from their shareholders; (d) the entity and managerial conception of the company; and (e) regulatory or court approval of corporate purposes. These objections are contrary to what Prosperity is advocating – a strengthening not weakening of board accountability to shareholders; a proprietary not entity view in which firm objectives are aligned with, not divergent from, those of shareholders; and freedom of choice and plurality of purposes unconstrained by regulatory, court or government intervention. Davies erroneously believes that Prosperity seeks to promote communal or social objectives. On the contrary, purpose statements assist companies with making their commitments credible.  They are enabling not prescriptive or restrictive. They apply equally to private as well as communal or social objectives and they are potentially as significant in enhancing value for shareholders as other parties. Davies himself sets out how companies can make their purpose statements legally binding in an “embarrassingly simple” way without requiring any change to company law.

This chapter explores the legal framework for ESG investor engagement and, in so doing, favours a market-led approach over prescriptive regulatory intervention. I argue that investor initiatives and engagement are and should be the primary tool to promote sustainability orientation in the market. Legislative measures are deemed most effective when empowering investor engagement, enhancing transparency in sustainability criteria, and addressing greenwashing concerns. The need to build coalitions and to convince fellow investors of an initiative can then act as an in-built “filter”, which would help mitigate the pursuit of merely idiosyncratic motives and would give support to only those campaigns that are supported by a majority of investors. In particular, institutionalised investor platforms have emerged over recent years to coordinate investor campaigns and to share costs. Accordingly, I conclude with the policy implication that lawmakers should take a supportive and facilitative approach that supports investor engagement and private ordering. By doing so, static and interventionist legal policies would become less justified.

The ever-increasing disclosure requirements we impose on public companies are, at best, not read, and at worst, are likely reducing the quality of investor decision-making. More environmental and social (ESG) disclosure has been touted as a popular solution to climate change and social issues. However, the evidence suggests this is highly unlikely, as it is very difficult for shareholders to understand the impact of corporate actions and the viable alternatives. Making matters worse, the very information shareholders require is information that assists a firm’s competitors and therefore is information that, if disclosed, has the effect of reducing the incentives for ESG innovation. Shareholders possess few legal tools capable of constructively engaging with corporate behavior. The empirical evidence about these theoretical points is evaluated, along with an examination of the real-world evidence about the outcomes of shareholder ESG interventions.

Corporate governance reforms are increasingly promoted as a method of materially improving social and environmental (ESG) outcomes. This chapter clears up the conceptual confusion about what counts as an action taken primarily for ESG purposes, then considers the incentives, resources, and market constraints that compel corporate actors to avoid unnecessary expenses or lower-value investments. The empirical evidence suggesting corporations are unlikely to voluntarily pursue ESG includes: (1) the revealed preferences of managers, particularly those that emphasize their ESG commitments; (2) the impact of ESG-friendly governance practices on corporate outcomes; and (3) the actual outcomes generated by giving ESG-friendly constituencies (such as socially responsible investors or employees) more power in corporate governance arrangements.

The Black Lives Matter movement and the pandemic propelled many financial institutions, including banks, to adopt Environment, Social, and Governance (ESG) principles. Banks disclosed their metrics in various reports showing that they were somewhat implementing efforts to address ESG in their business, operations, and management.

In recent years, fiduciary law has moved toward the center of scholarly attention in the common law world.1 In spite of its “elusive” nature,2 enough instances of fiduciary relationships occur across a wide variety of legal areas that many – with good cause – describe it as a distinctive field.3 Courts as well as scholars in common law jurisdictions deal concepts and ideas concerning fiduciary law back and forth.4 Although civil law countries have no tradition of the trust as a legal institution,5 courts and scholars alike term relationships based on some kind of personal or professional trust “fiduciary.”6 German law subjects guardians,7 trustees in bankruptcy,8 attorneys,9 and others to a specific set of fiduciary duties, the most important of which is a duty of loyalty.10 France has introduced “la fiducie,” a substitute for the common law trust.11 Indeed, civil law countries have long combined property and contract law in order to fashion substitutes for the common law trust. Contract-based Treuhandverhältnisse – that is, relationships of trust – have been a staple part of the German legal discourse for several decades, if not centuries.12 And in recent years, the trust as a legal institution is gaining ground in civil law jurisdictions, following national recognition of the Hague Trust Convention by countries such as Italy and the Netherlands.13

As investors and shareholders drive public companies to address climate change, there is a political movement driven by conservative state treasurers pushing back on the concepts of ESG using the premise that ESG will adversely impact their investment returns.

As scholars and activists seek to define and promote greater corporate political responsibility (CPR), they will benefit from understanding practitioner perspectives and how executives are responding to rising scrutiny of their political influences, reputational risk and pressure from employees, customers and investors to get involved in civic, political, and societal issues. This chapter draws on firsthand conversations with practitioners, including executives in government affairs; sustainability; senior leadership; and diversity, equity and inclusion, during the launch of a university-based CPR initiative. I summarize practitioner motivations, interests, barriers and challenges related to engaging in conversations about CPR, as well as committing or acting to improve CPR. Following the summary, I present implications for further research and several possible paths forward, including leveraging practitioners’ value on accountability, sustaining external calls for transparency, strengthening awareness of systems, and reframing CPR as part of a larger dialogue around society’s “social contract.”