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Corporate Governance Assignment On Shareholder Engagement


Task: The Financial Reporting Council published the UK Stewardship Code in 2012 to enhance the quality of engagement between investors and companies. The Code, which was revised in 2020, advocates that effective stewardship is of benefit to companies, investors and the economy as a whole.
Write a critical literature review on the role of shareholder engagement and shareholder activism in the discharge of stewardship. Specifically your review should cover:
a) An evaluation of the shareholder activism literature to illustrate the extent that UK shareholders demonstrate stewardship in their investee corporates through shareholder engagement and through exercising their voting rights;
b) A critical analysis of the extent to which the Stewardship Code has improved the quality of shareholder engagement and ensured that investors act as responsible stewards.
To support your discussion, you are expected to make a reference to relevant theories, research studies and practical examples, where appropriate. Your literature review should rely mainly on high-quality sources (i.e. peer-reviewed academic journals). Please use the literature appropriately and reference all sources fully. Given that this is a 3,000 word review, you are expected to use a minimum of 12 high-quality sources (including the suggested readings) for this coursework.
Maximum word count: 3,000 words excluding references. Please avoid using appendices.
The assignment will be marked out of 100 but accounts for 50% of the module mark if you are enrolled on ACFI7019 Corporate Governance and Social Responsibility.
If you are enrolled on ACFI7017 Corporate Governance, this assignment accounts for 100% of the module marks.


The present corporate governance assignment is based on the critical literature review on the role of shareholder involvement as well as shareholder activism in the stewardship discharge. It covers the viewpoints of various authors to reach at a valid conclusion. This corporate governance assignment would help in showing the reliability and originality of the research aim, purpose and main problem. Along with this, it considers the evaluation of shareholder activism for illustrating the scope that UK shareholders reveal stewardship in their investee corporate via shareholder engagement and via practising their voting rights. The corporate governance assignment also conducts analysis of the scope by which the Stewardship Code has improvised the shareholder engagement quality and made sure that the investors operate as liable stewards.

Key Definition
Corporate Governance
Corporate governance is considered as the integration of laws, procedures and roles by which business entities are directed, operated and synchronized. Further, this term contains internal as well as external forces that impact the corporate stakeholder’s interest; inclusive of consumers, suppliers, governmental and managerial authorities (Mallin, 2016).

A steward is termed as someone who is liable to secure the needs of others. As per the steward theory, the executives of company take care of the interest of shareholder and consider decision making on their behalf. The main aim behind this is to establish and manage successful firm so as to ensure prosperity of shareholders. Shareholder stewardship and the responsible asset managers and owners are required to evaluate and involve with investee companies as a representative of their beneficiaries (Cossin and Ong, 2016). The concept of shareholder stewardship discussed in the corporate governance assignment expands to the share voting at general meeting of shareowners.

Shareholder activism
Shareholder activism is a manner by which shareholder can impact the conduct of company by practising their rights as half owners. Furthermore, share’s classes enables for different voting privileges, along with dividend entitlements (Downs, Straska and Waller, 2019). It enables shareholder to consider greater ownership and corporate responsibility and to submit their disapproval over problems varying from non-financial problems to unlock extra value and generate effective ROI.

Shareholder engagement
Shareholder engagement is very significant for investor, it is because aftermath of the financial crises, institutional investors are in higher pressure to interpret the companies wherein they can make investment and employ their influence to reduce the corporate governance. In this way, it is a way for the shareholder to commune their viewpoints, considerations, opinions and thoughts to the managerial authorities and board of directors (Behar, 2016). It is held through annual shareholder meetings, earning calls on quarterly basis and conference calls.

Literature review
Analysis of the shareholder activism to evaluate the extent to which shareholders of UK validate stewardship in their investee company by shareholder engagement and by exercising their voting power
As per the research conducted on this corporate governance assignment, in United Kingdom, the frequency and significance of shareholder activism is in growing trend. It has been observed that, shareholder activism is not a new concept in the country, the forms of investor undertaking activism, the organizations that are directing and the results that they are pursuing to obtain, have sustained to vary in the recent time.

Shareholder activism is a usual term, that is implemented to explain an approach by shareholders or group of shareholders to board of company, and if essential to its fellow shareholders, looking for impact of change within an organization (ÇELIK, & ISAKSSON, 2014). In other words, it is also clear in this corporate governance assignment that shareholder activism is a manner in which shareholders can create impact on the behaviour of a company by exercising their rights as a limited owner. Although, in UK, shareholder activism has historically been emphasized on getting representation by board, activist investor have started to apply the legal and governing techniques provided to them to obtain a wide range of results, short of a whole control functions (CRESPI, & RENNEBOOG, 2010).

In several companies, the major amount of equity is hold by institutional investor around the world, and plays a main role in the corporate governance aspect. Concerning this, corporate governance is referred as a procedure in which company are managed as well as controlled. In this, directors are mainly responsible for implementation of corporate governance in the organization (CONYON, & SADLER, 2010). The role of shareholders in corporate governance is limited to appointment of directors and auditors. In this aspect, institutional investors that engaged in regular discussion with companies also have right to vote in annual general meeting of company. 

In the UK, shareholder activism campaign could be categorized in two manners, such as, event-driven activism, and strategic or operational activism. In this aspect of corporate governance assignment, event driven activism take place, where activist shareholder would seek to create its influence on present corporate activity of the organization, specifically, in connection to a takeover, or merger and acquisition transactions. On the other hand, operational or strategic activism takes place, where the activist shareholder looks to address the operational performance, the financial statement, or other strategic problem or any other concern for long term period of a company like governance or remuneration, that are exterior to present corporate activity (GILSON, & GORDON, 2013). However, strategic or operational activism is generally connected with change in leadership or management, obtaining control in the rigid company law logic is not generally a goal of shareholders.

Like the form of shareholder activism could change widely, there is not any form of shareholders activism in the country, and the term, that could include a broad range of investors. In this aspect of corporate governance assignment, some activist are particular investment funds with activism as their commercial ideal, and it is these investors that are normally categorized as activist shareholders. Similarly, currents shareholders may become active shareholders (LU, For instance, in the opinion of shareholders the performance of the company was not up to the mark or if they do not agree with the decision taken by the board of directors of company. Conventionally, the institutional investors of the United Kingdom did not possess any right for their concern or any approaches in the management in the public area, and the vocal activist society has traditionally been made up of hedge funds, and other substitute investors. Gradually, although, institutional investor as well as other shareholders are becoming to raise their concern in open or to give their help, publically or privately to those who are more desiring or capable to do, at the time they understand that their anxieties are not being registered by the management of the organization (MALLIN, 2012). Sometimes, activist shareholders are explained as executing a lightning rod role for such discord in the public market. It can be said that, activist shareholders, sometime, considered as a meaningful channel for the disappointment sensed by a broad range of shareholders and probably obtain their assistance.

Moreover, in this corporate governance assignment, we will get to know that the recognized shareholder activist funds running in the United Kingdom are usually well examined, strategically shrewd and ascertained and equipped with the access to finance required helping their campaign. These activists would be organized for a hostile response, and would not cautious away from public dissatisfaction. It would assist towards to reach a balanced agreement with board of company, if they could. They are determined and relatively strong in the aspect of starting know-back (MCCAHERY, SAUTNER, & STARKS, 2016).

After the global financial crisis, the International Stewardship Codes has been developed in the United Kingdom. There is significant debate is related about controlling the power of shareholders as compared to board of director, by motivating the shareholders to execute their legal rights and enhance their extent of engagement in corporate governance of the organization. Concerning this aspect of corporate governance assignment, in the United Kingdom, the stewardship code looks to confirm that shareholders, specifically, institutional investors are considered as active parties in the corporate governance. Aspects of these codes have made significant claims related to their advantages. It has been stated in the Stewardship Code of the United Kingdom, for instance, the primary objective of stewardship code is to encourage the long term success of the organization, which provide benefits to the investors as well as company as a whole (REISBERG, 2015).

Structure of the financial market is constructed in the report of corporate governance assignment in such manner that shapes the benefits to the institutional investor as market performers, apply some controls on their performance, and notify advancement of active ownership.

The foundation of share ownership as well as connected rights and powers of institutional investors are described in very well manner, in the Company Law of the country. Rights and power can be changed in detail manner by the authorities. In the general aspect, as per the company law, owner of the shares, that means shareholders possess right of voting in respect of selection of directors. Moreover, it is also required to take approval of the shareholders in case of making material changes in the capital structure of the organization as well as decision on the major changes in the company. Moreover, limited liability clause also assists in placing an upper limit regarding the obligation of shareholders towards debt of the organization (TILBA, & MCNULTY, 2013). In the United Kingdom, Stewardship Code for investors is entitled for the consideration of the fiduciaries obligations institutional investors to their beneficiaries. A review by the government of the country in financial market, reflected the increasing supply chain in investment, and that institutional investors are one of the part of intermediaries at some space from the end-investors, thus the ultimate standard is principal-agent relationship.

The information provided in the corporate governance assignment has been concluded that, in the corporate governance system, investor are company are considered as central point, and therefore it is required to better understand how they work with or in contrary to each other. There is much more aspect to be implemented to understand such as reasoning, affective, interactive elements of the underlying connection of distance and proximity implemented by the ways which establish the element of active ownership. 

Analysis of the extent by which Stewardship Code has enhanced shareholder engagement quality and ensured the responsibility of investors as stewards
It can be articulated in the present segment of corporate governance assignment that, it all started when concerns were heightened due to 2008 financial crises, various countries established their stewardship codes respectively. Moreover, these codes aim to augment monitoring and engagement quality of investors, while enhancing transparency in relation with their governance responsibilities. In the UK Stewardship Code, of the FRC, it states that the Stewardship Code seeks to improvise engagement quality among investors and corporations to escalate long term returns and smoothening the practice of governance responsibilities (Shaukat and Trojanowski, 2018). The code examined in the corporate governance assignment has the key objective to set greater expectations on those who are liable for the management of long-term savings of public. Particularly, it aims to place stewardship as the responsible allocation, supervision and administration of capital to establish long term value of shareholders, resulting into sustainable advantages for the community, environment and the economy as a whole. It requires signatories to engage completely with user for proper maintenance or improvisation of asset value. It also requires signatories to contribute in collective engagement and increase stewardship activities for influencing users, when required. It is all about considering safe investment of capital for creating for longer term sustainable value, supported by proper governance and reporting.

Stewardship codes are a relatively new phenomenon in corporate governance, designed to encourage institutional investors to become more active and responsible shareholders.Stewardship codes are a comparatively new phenomenon in the field of corporate governance, developed to stimulate institutional investors to act more responsible and active shareholders. According to Shaukat and Trojanowski (2018), stewardship codes consist of recommendation regarding how big investors, like insurance corporation and pension funds shall play an active and engaged role in listed companies. It can be stated that the, UK regulator has defined stewardship activities as comprising: evaluating and involving with companies on aspects like risk, corporate governance, strategy, capital structure, culture and compensation. The corporate governance assignment examines the words of Josserand, Kaine and Nikolova (2018) who also reflected that the code of Singapore refers to involving and measuring on such issues like the mandate for the performance management, board, corporate governance, risk management and capital structure. Therefore, the stewardship concerns and considerable are widespread and mainly focus on the engagement procedure among shareholders and companies instead of the topics covered.

By the same token, Klettner (2018) notes that Stewardship Codes considers the notion further by suggesting a series of policies and procedures that generate careful management. Hence, stewardship is considered as the ownership engagement system by shareholders. It can be articulated in this section of corporate governance assignment that the law has certain extent that falls behind the times, it makes assumption that the shareholders have interest in becoming corporate owners wherein they make investments when this generally not the case. To this note, the existing policy direction is to motivate higher shareholder participation such that they involve in a liable way to support the sustainable and enduring corporate interest.

In regards with Lu C et al. (2018) explored in the corporate governance assignment, the UK Stewardship code has considered as the first ever voluntary governance code particularly for institutional investors. Furthermore, the Code establishes principles and policies for effective stewardship by investors towards their investee corporations with the purpose of improvising lasting risk-adjusted shareholder returns. In the similar context of corporate governance assignment, Tilba and Reisberg (2019) asserts that, code compliance is related favourably toquality of investee company earnings. In addition to this, considerable and continuous investments are more expected to result into efficient stewardship in spite of Code Compliance.

In accordance with Adrian and Wright (2020), Stewardship codes are one of the most effective tools for improvising the shareholder engagement quality and transparency regarding how shareholder describe and discharge their governance roles and responsibility ownership. The findings obtained in the corporate governance assignment signifies that in this way, these codes, which have been established by regulators, have the purpose of clarifying fundamental governance needs, rules and expectations in manner or extent that improvise investor-company dialogue quality and make better contribution towards sustainable and commendable corporate success. Moreover, this also offers a means for shareholders to have better communication of their priorities at large extent.

In the perspective of Cundill, Smart and Wilson (2018), stewardship codes attempt to support higher shareholder engagement levels by boosting the growth and public policy disclosure regarding the discharge of investor stewardship responsibilities. These are inclusive of the shareholder requirements and responsibilities in a set of core governance areas, particularly; environmental considerable, conflict of interest, social and governance factors, voting, and involving and measuring with Investee Company. Furthermore, stewardship codes generally inspire investors to consider proper disclosure of policies, especially on the website of investors or in the annual reports and to offer annual updates.

By considering the perspective of BarrosoCasadoRau?l et al. (2016) in the corporate governance assignment the establishment of the Stewardship Code for the investors is a component of the global response towards the top-profile corporate issues and failures in the current decades, which have been credited in part to weak corporate governance. In the similar trend, Ponomareva, Shen and Umans (2019) reflect that the major aim of the Code is to increase the engagement quality among asset managers and corporations to assist and enhance long-tern risk-adjusted shareholder’s return.

In relation with Fenwick, McCahery and Vermeulen (2019) the Code includes seven guiding and substantial principles for institutional investors to practice their stewardship rules and responsibilities. These comprise of activities disclosure, management of conflict of interest, measuring and involving with investee companies. Furthermore, these principles are provided as below within this corporate governance assignment:

  • Public disclosure of policies on the ways they discharge their stewardship responsibilities.
  • Retaining a vigorous policy on the management of conflict of interest in regards with stewardship, which is out to be disclosed publicly.
  • Evaluating their investee company.
  • Establishment of concise guidelines on the ways they will exercise escalation of their stewardship activities.
  • Acting mutually and appropriately with other investors when required.
  • Having a precise policy on voting activities disclosure and voting.
  • Providing reports on timely basis of their voting activities as well as stewardship.

By considering this aspect presented herein corporate governance assignment, Shaukat and Trojanowski (2018) notify that the institutional investor’s failure to sufficiently involve with their investee company has been considered as a considerable contributory force in the current financial crises. In view of that, the US Stewardship Code attempts to improvise the institutional investor engagement quality.

In the light of encouraging higher institutional investor engagement quality the Financial Reporting Council considered the publishing of UK Stewardship Code, which would be a channel for greater engagement between corporation and shareholder, while forming a solid relationship between investment process and corporate governance.

It has been held that shareowner engagement is the best possible solution for most of the corporate governance related problems. In this way, Ro?nkko? Jaakko, Paananen and Vakkuri (2018) states that the latest US Stewardship Code has improvised pension funds to be highly engaged with corporate owners. With this aspect of corporate governance assignment, the code seeks to embed engagement in the investment management philosophy and is related with enhancing the in-house decision making investment.

On the basis of above analysis provided in the corporate governance assignment, it can be concluded that Stewardship is very important concept in corporate governance as it helps in encouraging the institution investors to take proper action to act as responsible stewards on the behalf of their beneficiaries and to support good corporate governance and the commendable success o company in the capital markets. It can be cited in the above context of corporate governance assignment that shareholder activism and engagement is also very important and serve as an efficient monitoring means that can improvise corporate governance in the firm and in many cases, create an affirmative and valuable impact on organizational value, decisions and performance. Therefore, it is significant for the corporate governance quality, capital market’s future and protection of many individual’s savings for investments as well as pensions that proper contributions are made to foster main investors to make reasonable use of ownership influences. Hence, considering the facts provided in this corporate governance assignment, it can be stated that the Stewardship code matters a lot in engaging shareholders, enhancing their value and facilitating good governance at the same time also highlights the benefits to shareholders of higher engagement on subject of concerns to their trustees and a broader range of stakeholders. 

Adrian, C. and Wright, S. (2020) “Perceptions of Shareholders and Directors on Corporate Governance: What We Learn About Director Primacy,” 60, pp. 1209–1236.

BarrosoCasadoRau?l et al. (2016) “Shareholder Protection: The Role of Multiple Large Shareholders,” Corporate governance assignment 24(2), pp. 105–129.

Behar, A. (2016) The shareholder action guide : unleash your hidden powers to hold corporations accountable. Oakland, UNITED STATES: Berrett-Koehler.

ÇELIK, S. & ISAKSSON, M. 2014.Institutional investors and ownership engagement.OECD Journal: Financial Market Trends, 2013, 93-114.

CONYON, M. & SADLER, G. 2010. Shareholder voting and directors' remuneration report legislation: Say on pay in the UK. Corporate Governance: An International Review, 18, 296- 312.

Cossin, D. and Ong, B. H. (2016) Inspiring stewardship. Hoboken: Wiley. 

CRESPI, R. & RENNEBOOG, L. 2010. Is (institutional) shareholder activism new? Evidence from UK shareholder coalitions in the pre?Cadbury era.Corporate Governance: An International Review, 18, 274-295.

Cundill, G. J., Smart, P. and Wilson, H. N. (2018) “Non-Financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance*,” 20(2), pp. 606–626

Downs, D. H., Straska, M. and Waller, H. G. (2019) “Shareholder Activism in Reits: Shareholder Activism in Reits,” 47(1), pp. 66–103. 

Fenwick, M., McCahery, J. A. and Vermeulen, E. P. M. (2019) “The End of ‘corporate’ Governance: Hello ‘platform’ Governance,” 20(1), pp. 171–199.

GILSON, R. J. & GORDON, J. N. 2013. The agency costs of agency capitalism: Activist investors and the revaluation of governance rights. Corporate governance assignment Columbia Law Review, 113, 863.

Josserand, E., Kaine, S. and Nikolova, N. (2018) “Delivering Sustainability in Supply Networks: Achieving Networked Multi-Stakeholder Collaborations,” 27(5), pp. 605–611.

Klettner, A. (2018) “Chartered Secretary: Stewardship Codes and Shareholder Participation in Governance,” 70(5), pp. 227–234.

Lu C et al. (2018) “The Uk Stewardship Code and Investee Earnings Quality,” 31(3), pp. 388–404. doi: 10.1108/ARJ-09-2016-0116.

LU, C., CHRISTENSEN, J., HOLLINDALE, J. & ROUTLEDGE, J. 2018.The UK Stewardship Code and investee earnings quality.Accounting Research Journal, 31, 388-404.

MALLIN, C. 2012. Institutional investors: the vote as a tool of governance. Journal of Management & Governance, 16, 177-196.

Mallin, C. A. (2016) Corporate governance. Fifth edn. Oxford, United Kingdom: Oxford University Press.

MCCAHERY, J. A., SAUTNER, Z. & STARKS, L. T. 2016. Behind the Scenes: The Corporate Governance Preferences of Institutional Investors. The Journal of Finance, 71, 2905-2932.

Ponomareva, Y., Shen, W. and Umans, T. (2019) “Organizational Discretion, Board Control, and Shareholder Wealth: A Contingency Perspective,” 27(4), pp. 248–260. 

REISBERG, A. 2015. The UK Stewardship cCode: on the road to nowhere? Journal of Corporate Law Studies, 15, 217-253.

Ro?nkko? Jaakko, Paananen, M. and Vakkuri, J. (2018) “Exploring the Determinants of Internal Audit: Evidence from Ownership Structure,” Corporate governance assignment 22(1), pp. 25–39. 

Shaukat, A. and Trojanowski, G. (2018) “Board Governance and Corporate Performance,” 45(1-2), pp. 184–208.

Shaukat, A. and Trojanowski, G. (2018) “Board Governance and Corporate Performance,” 45(1-2), pp. 184–208.

Shaukat, A. and Trojanowski, G. (2018) “Board Governance and Corporate Performance,” 45(1-2), pp. 184–208.

TILBA, A. & MCNULTY, T. 2013.Engaged versus Disengaged Ownership: The Case of Pension Funds in the UK.Corporate Governance: An International Review, 21, 165-182.

Tilba, A. and Reisberg, A. (2019) “Fiduciary Duty Under the Microscope: Stewardship and the Spectrum of Pension Fund Engagement,” 82(3), pp. 456–487.


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