October 8th 2019

Is Stewardship Really the Role of the Investor

In the context of Corporate Governance, the idea of ‘stewardship’ marks a shift in the expectations placed on shareholders. Those who invest in a company are now expected to take a more active interest in its overall sustainability – and in its behaviour as a good corporate citizen, i.e. its ‘ESG’ (environmental, social and corporate governance) performance.

The Financial Reporting Council wants shareholders to act as stewards of companies to guard against corporate excess and premature failure. Let’s face it, they’ve tried everything else; independent NEDs, RemCos, Audit Committees and now auditors too.

The Stewardship Code, first published in 2010, is primarily aimed at institutional investors and it marks a principled shift in the role and expectations of shareholders. But what exactly does ‘stewardship’ mean in this context? Is the role of the steward to protect the economic interests of the asset owner, or is it to nurture and support the good management of the companies in which they invest?

And who exactly are these ‘shareholders’ anyway? Just as there is a separation of ownership and control between shareholders and corporate management, there is now a separation between those who own shares and those who manage them on the investor’s behalf. In 1963, individual investors owned 54% of UK firms. That figure is now around 12%.

Can we really expect large financial organisations with diverse portfolios – and potentially diverse business models – to take an active interest in the strategy and governance of individual companies? These are some of the themes that started to emerge from our Corporate Governance report in March 2018. This report and the discussion meeting on Thursday 17th October 2019 will look at questions of governance from the perspective of shareholders rather than
directors. We will explore the concept of stewardship and look at the change in the nature of share ownership over recent decades. In doing so we will examine whether and how far the new breed/s of ‘shareholder stewards’ can realistically be expected to meet the high expectations they have been set.

In the context of Corporate Governance, the idea of ‘stewardship’ marks a shift in the expectations placed on shareholders. Those who invest in a company are now expected to take a more active interest in its overall sustainability – and in its behaviour as a good corporate citizen, i.e. its ‘ESG’ (environmental, social and corporate governance) performance.

The Financial Reporting Council wants shareholders to act as stewards of companies to guard against corporate excess and premature failure. Let’s face it, they’ve tried everything else; independent NEDs, RemCos, Audit Committees and now auditors too.

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