Different visions of stewardship: understanding interactions between large investment managers and activist shareholders

Weak incentives to invest in shareholder oversight and limited resources confine stewardship by large institutional investors. According to an influential argument, activist shareholders can offer a solution by supplying large investment (asset) managers with company-specific information. This article questions the potential informational role of traditional activist campaigns initiated by hedge funds – the most prominent group of activist shareholders – for the purposes of stewardship by large institutional investors by showing that these two groups of shareholders have different visions of stewardship with little scope for interactions. Consistent with this argument, data from the FTSE 350 companies, the UK's largest listed firms, show that associations between activist demands and the voting behaviour of top investment managers vary based on activist types and demand topics. Demands initiated by hedge funds and on business and operating matters receive less support. These findings have important implications for shareholder stewardship and for corporate law reform

Voting Engagement by Large Institutional Investors

While shareholder stewardship has captured much attention recently, the evidence on the role of large institutional investors remains relatively scarce. Large fund families have become an increasingly powerful force since the financial crisis of 2008, but the prevailing view holds that fund managers avoid active shareholder oversight. This study aims to contribute to the ongoing discussions about the stewardship role of large institutional investors by revealing how the biggest investors in companies listed on the London Stock Exchange behave and vote at shareholders' meetings. The results show growing shareholder stewardship efforts by large asset managers, including index (often described as passive) fund managers, over the last five years and thus challenge some common assumptions about large institutional investors. Although the shareholder opposition rate to management proposals, many of which are trivial, remains economically minor, the relative change over time is significant. The study also reveals that the primary target of investor oversight by large fund managers has been corporate governance standards and global challenges shared across many companies and countries, rather than business strategy or performance. These findings have important implications and will better inform discussions and efforts to build regulatory frameworks for effective shareholder stewardship and engagement in publicly traded companies. The results suggest that regulators need to remain realistic by not placing impractical stewardship expectations on large institutional investors alone. To go beyond governance engagement, regulatory efforts need to take a broader approach towards investor stewardship and shareholder rights. In particular, hedge funds and other shareholder activists can improve corporate strategy and operational oversight by supplying large fund managers with firm-specific information through activist demands

Debtholder Stewardship

Debtholder stewardship refers to the involvement of corporate creditors in a firm's governance framework with the aim of improving corporate decision-making. This article develops the theory of debtholder stewardship by identifying the mechanisms of debtholder influence, assessing their effectiveness in modern capital markets, and outlining the implications of this analysis for investor stewardship and regulatory efforts to support it. The impetus of this study is the expansion of the UK Stewardship Code across a broader range of asset classes, stewardship activities, and topics. The code has moved away from the traditional focus on shareholders by adding investors in other assets to the list of the stewards of corporate activities. Also, the revised concept of stewardship covers broader topics, including environmental, social, and governance (ESG) factors. But our understanding of debtholder stewardship, especially on sustainability matters, is inadequate. This article explains whether corporate creditors, both public and private, can promote responsible business practices through the stewardship of borrowers

Between the Green Pitch and the Red Tape: The Private Legal Order of FIFA

FIFA, the world governing body of football (or soccer, as it is known in some countries), has long been associated with the World Cup and, lately, corruption scandals. Less known is FIFA’s success in building a private legal order that competes with public orders. This study explains how and why this private legal order has succeeded in governing the behavior of the involved actors and keeping them away from regular courts. We argue that the ability of the order to offer what other governance modes cannot is key: FIFA, as a transnational private authority, offers harmonized institutions that apply across national borders and, in many cases, are better accustomed to the needs of the involved parties. State-made alternatives, on the other hand, are often based on a one-size-fits-all approach and lack certainty of application. In addition, FIFA’s rules increase the gains of clubs and prominent footballers. While the interests of some other involved parties—lesser-known players in particular—might be better served by the application of formal State laws, the established equilibrium discourages deviation. This study contributes to a better understanding of alternative modes of institutional design, particularly by illustrating how private orders function in an environment where reputation plays a limited role

What Do the Decisions of the European Court of Human Rights Tell About Property Rights Across Europe?

Despite the important role that institutions play in explaining economic growth, there exist few objective quantitative measures of institutional quality. We propose a new quantitative index that allows comparing the strength of property rights across the member states of the Council of Europe. To construct the index, we analyzed all judgments of the European Court of Human Rights (ECtHR) related to property rights for all member states and identified whether the ECtHR had found a violation of property rights in the domestic courts’ decisions. The resulting data were used to calculate the likelihood of finding violation in the judgments of national courts. Assuming that the ECtHR is impartial and unbiased, higher probability of overruling the judgments of local courts from a given country implies that the level of property rights protection is low. Our constructed measure is highly correlated with a number of indices of property rights protection used in the literature and serves as a strong objective foundation for these indices. Furthermore, we found that the ECtHR had received more applications from countries with higher likelihood of national court judgments violating property rights