Can a Global Legal Misfit be Fixed? Shareholder Stewardship in a Controlling Shareholder and ESG World

Can a Global Legal Misfit be Fixed? Shareholder Stewardship in a Controlling Shareholder and ESG World

Ernest Lim, Dan Puchniak

Series number :

Serial Number: 
600/2021

Date posted :

August 18 2021

Last revised :

August 18 2021
SSRN Share

Keywords

  • shareholder stewardship • 
  • controlling shareholders • 
  • Comparative Corporate Law and Governance • 
  • ESG

As demonstrated by one of the authors elsewhere, UK-style shareholder stewardship is a ‘global legal misfit’ because it was designed for a jurisdiction with dispersed shareholding where institutional investors collectively control a majority of the shares; however, it has been transplanted into jurisdictions where 

controlling shareholders predominate and institutional shareholders are collectively minority shareholders. This Chapter addresses an important question that naturally flows from this reality: what ought to be the role of shareholder stewardship in a world dominated by controlling shareholders?

This question is answered by analyzing the effectiveness of shareholder stewardship as a mechanism for advancing ESG in controlled jurisdictions – especially when compared to other viable alternatives. It then operationalizes this analysis by evaluating the effectiveness of the only stewardship code in the world – the Singapore Family Code – that has attempted to reorient UK-style stewardship to a  controlling  shareholder environment.

This Chapter concludes that the prospects for shareholder stewardship in jurisdictions where controlling shareholders predominate will likely be limited. Although a reoriented approach to  shareholder  stewardship may play a role in nudging controlling shareholders towards ESG, hard law will likely be necessary to bring about real change. Unfortunately, this suggests that shareholder stewardship may be used as a ‘smoke screen’ by controlling shareholders and governments to send a formal signal that they are addressing ESG in controlled jurisdictions – when, in reality, functional change will be limited in practice.

Authors

Real name:
Ernest Lim