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.

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.

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.

This chapter examines the impact of insider regulation on the board-shareholder dialogue. It offers a comparative analysis, revealing that EU and UK laws are more restrictive than those in the US. Drawing from this analysis, the paper raises the question of whether the EU should introduce a safe harbour rule to facilitate shareholder engagement through private disclosure of inside information. While shareholder engagement is considered beneficial for corporate governance and long-term firm value, the paper questions the necessity of selectively disclosing inside information to investors. It argues that mandating greater transparency in the board-shareholder dialogue is preferable, ensuring all shareholders have equal access to information. The feasibility and practicality of a safe harbour rule are doubted due to associated costs and challenges. In conclusion, the chapter rejects proposals to enact such rules, citing limited benefits and substantial costs.

This chapter delves into the ongoing debate surrounding institutional investor engagement, spanning sporadic voting to strategic shareholder activism. Focusing on the stewardship role of institutional investors as shareholders, referred to as shareholder stewardship, it contextualizes this in a historical context within corporate governance. The focus is placed on micro-level shareholder stewardship – how institutional investors monitor and engage with specific companies in their portfolios – emphasizing its alignment with traditional notions of shareholder engagement. The chapter illustrates that micro-level shareholder stewardship extends beyond mere investor engagement. It involves firm-level shareholder engagement to improve long-term company performance, alongside a commitment to meeting ultimate beneficiaries’investment needs and serving public interests, such as addressing saver needs and mitigating externalities, like climate change. Furthermore, the chapter identifies hedge-fund-style activists as key players in micro-level shareholder stewardship, offering new empirical evidence on their global scale. Despite variations, a category of investors – the activist shareholder stewards – emerges from stewardship disclosures, fulfilling the stewardship role in corporate governance.

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.

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 right to elect and remove directors is a key feature of shareholder participation in corporate governance. Indeed, the ultimate form of board-shareholder engagement is for shareholders to have their representatives inside the boardroom. This chapter examines the role that minority shareholders play in nominating directors to corporate boards. Despite the growth in power of institutional investors, and their increasing commitment to investor stewardship, global asset managers almost never attempt to nominate director candidates themselves. Rather, the most effective instigators of minority shareholder board representation are activist hedge funds. This chapter makes three key contributions to the discussion on board-shareholder engagement. First, drawing on a hand-collected dataset of activist board representation campaigns at S&P 500 companies, it analyses the practice of activist hedge funds appointing directors to corporate boards. Second, it explores the implications these cases of activist-nominated directors may have on accepted wisdom regarding the role of the board. In particular, it is argued that activist‑appointed directors may expose some of the limitations of the current independent monitoring board model and exemplify a solution where boards proactively contribute to sustainable value creation. Third, the chapter explores how to facilitate broader institutional investor participation in the director appointment process.

Common ownership is the talk of the town in antitrust land. The competitive implications of rival firms being partially owned and controlled by a small set of overlapping owners are both fascinating and hotly contested. Could the source of potential harm be minority shareholder control in a setting of widely held companies? Critics question the extent and mechanisms of common owners’ influence driving any pro- or anticompetitive effects. This chapter aims to present a comprehensive account of partial ownership, capturing the incentives and effects of both individual and institutional investors and also cross- and common shareholding. It illustrates the early historical unity between corporate and competition laws in regulating shareholding acquisitions but also their progressive quiet disconnect. Triggered by the contemporary common ownership (hypo)thesis, it puts forward a taxonomy of shareholding types and their control characteristics from a competition law perspective, with emphasis on commonly thought passive and diversified investment holdings. The chapter concludes by urging competition and corporate governance and finance policymakers towards harmonic regulatory solutions to address common ownership. It also offers a quantum theory of the corporate property “atom”, drawing cautionary tales about the dynamic and ambiguous qualities of minority common shareholding for antitrust enforcers.

A stylized fact that lurks in the background of the recent literature on common ownership is the parallel increase in the profitability of oligopolistic industries and common ownership. Some have argued that the growth in common ownership has caused the increase in oligopoly profits and have proposed a variety of policy responses. This paper briefly reviews the available evidence and finds it unconvincing. It then provides an overview of the evidence that concentration and profitability have increased, considers alternative explanations, and suggests that the emergence of “superstar” firms – and not the growth in common ownership – could be a fundamental driver of the parallel increase in concentration and profitability.

The chapter argues that socially responsible investment (SRI) can be linked to long-term financial success and therefore should be part of the corporate social responsibility (CSR) strategy of investors. It shows how capital providers, including ordinary shareholders, institutional investors and socially responsible investors, can provide the stimulus for improvements in CSR standards and performance. The chapter traces the origins of SRI and investigates the range of powers and responsibilities, procedures and opportunities that can be applied to encourage a greater degree of participation of different kinds of investor, particularly institutional investors, in SRI.

During the last decade, discussion on shareholder activism concentrated on hedge funds, some seeing them as agents for passive institutional shareholders, bridging the separation of ownership and control, others believing their short-term value-maximization interests differing fundamentally from those of other shareholders. Some have seen hopes for long-term activism in institutional shareholders such as pension funds. In the European Union, activism is seen positively, encouraging proposals to enhance shareholders’ rights against the boards’ discretion. The purpose of this chapter is to focus on institutional investor activism and its impact on both their ultimate beneficiaries and their target companies, and how investors could be incentivised to more sustainable behaviour in their activism. Albeit the focus is on the European Union, institutional investors are global. A broader perspective including North America and Asia is therefore taken. The most important impact of institutional activism is arguably normative, causing changes in corporate governance. Specific attention is therefore given to governance questions.

Legal means of shareholder engagement in Australia vary considerably, ranging from reliance on shareholder rights conferred under the Corporations Act 2001 (Cth) to reliance on class actions seeking the collective enforcement of legal rights arising from corporate conduct. This chapter offers an introduction to Australia’s corporate governance framework in the context of corporate decision making and the exercise of shareholders voting rights. The balance of power between shareholders and the board of directors, and its legal impact on shareholder engagement, is highlighted. Insights are provided into the legal means of shareholder engagement in Australia and the manner in which votes are exercised. There is growing evidence of shareholder apathy and the dominance of institutional investors and proxy advisors. The chapter charts the recent trend towards active shareholder engagement on ESG and human rights issues at Annual General Meetings, notwithstanding the limited opportunities to propose advisory or non-binding resolutions at meetings.

Institutional investors have traditionally dominated the ownership structure of large publicly traded companies in the United Kingdom. Attention to the role and participation of institutional investors in the corporate governance of British firms has been growing since the late 2000s following regulatory efforts to empower shareholders, for example, through say-on-pay votes, and to promulgate best practices of shareholder voting and engagement via soft law stewardship codes. This chapter presents the state of the art and recent trends in shareholder engagement and voting by institutional investors in the UK. Asset managers affiliated with large fund groups have been taking a more active approach to stewardship, although their efforts generally focus on identifying and promoting best practice corporate governance standards and dealing with global threats such as climate change and social matters. The chapter also discusses the roles of activist shareholders, proxy advisers and the COVID-19 pandemic in shareholder voting and engagement.

Empowerment of minority shareholders has been a central theme of China’s corporate governance movements in the past two decades. Cumulative voting and the majority of the minority rule are exemplary of Chinese reformers’ efforts to strengthen shareholders’ rights to vote. Other shareholders’ rights, such as the right to call a meeting, the right to propose, and the right to information, are also in place and, at least in theory, enable public shareholders to engage the controlling shareholders of their investee companies. The practical effect of these legal rights needs to be evaluated in the context of China’s path-dependent conditions, notably the prevalence of concentrated share ownership, the relatively weaker presence of institutional investors, and the approach to allocating corporate power which centres on the shareholders meeting.

In Canadian corporate law, shareholders occupy a preferential role vis-à-vis other stakeholders. Shareholders are the only stakeholder with statutory rights, such as the right to elect and remove directors. Against this backdrop, this chapter examines the Canadian corporate governance landscape from the perspective of shareholders and examines the legal and market tools that shareholders have available to them. This chapter also explores the limitations and effectiveness of these mechanisms and considers various market actors who influence shareholder behaviour and can facilitate shareholder engagement. The chapter concludes with an analysis of three trends in shareholder engagement in Canada: (i) institutional investor engagement on issues at the core of ESG; (ii) the role of proxy advisory firms and the influence they wield over institutional shareholders; and (iii) the immediate  impact of COVID-19 on shareholder engagement.

This Chapter provides an extensive analysis of the regulatory framework for shareholder voting and engagement in Italy. Despite high levels of ownership concentration of publicly listed companies, institutional investors have grown into prominent players on the Italian corporate governance scene. In particular, the Italian practice of shareholder engagement shows that say-on-pay, related party transaction oversight and slate voting for director elections are all useful for policing institutional investors’ active ownership, but they have to mutually combine in order to be effective. First, say-on-pay is a tool complimentary to minority representation on the board of directors to foster institutional investor stewardship. Second, minority board representation ensured by slate voting can improve self-dealing oversight since ex ante independent scrutiny of related-party transactions is required. Moreover, at Italian listed companies, the presence of minority-elected directors has actually had a positive impact on the adequacy of internal procedures for addressing related-party transactions.