Institutional Investor Engagement : How to Create a 'Stewardship Culture'

In order to encourage meaningful and constructive engagement, countries have promulgated and published stewardship codes. The distinctiveness of such codes is the attempt to create more responsible and purposeful investor engagement. In particular, institutional investors must be viewed – and view themselves – as “stewards” of a company.This paper argues that stewardship codes do matter. Looked at in isolation, the impact of regulatory initiatives aiming to mobilize institutional investors can often seem underwhelming in their effects and might easily be perceived as failing, in some sense. In general, regulatory interventions don't seem to have an immediate or significant impact on the incentives and actions of investors.Nevertheless, the process of designing and then implementing regulatory measures can play a crucial role in triggering interest in, and discussion around, the need for a more engaged relationship between institutional investors and the companies that they own. It is in this less formal mode — via a process of “spotlighting” — that regulation can play a crucial role in fostering a corporate culture in which all of the stakeholders in a company become more engaged with senior management