Insitutional investors can shape the governance debate more effectively by integrating ownership into their mainstream investment activiites according to a new position paper published by Eumedion, the Dutch shareholders group.

As the paper points out, the focus around the publication of the Dutch Corporate Governance Code in 2003 was on reinforcing the legal position of shareholders. In the group's view, activist shareholders are now taking the governance system in a "new direction". Attention now needs to be turned to how shareholders use their rights, in particular the percieved short-termist shareholders who might be pressuring management into short-term quick fixes.

Eumedion has turned to Dutch academics Prof. Dr. A.G.Z. Kemna and Prof. Dr. E.L.H.M. van de Loo to produce a research paper: ‘Role of institutional investors in relation to management boards and supervisory directors: a triangular survey’.

The research forms the basis of Eumedion's seven "concrete recommendations" for investors:

1. Substantial investments in personnel and training or to mandate – based on its own ESG policy – an external asset manager to act as an engaged shareholder;
2. Integration of ESG factors into the investment process;
3. Willingness to cooperate with other institutional investors;
4. Remuneration of fund managers that is more strongly linked to the long term and to the interests of the client and the ultimate beneficiaries;
5. A mandate to asset managers that covers a longer period and addresses engaged shareholdership;
6. The drafting of internal rules on dealing with conflicts of interest;
7. The recall of lent shares when there are important matters on the agenda for the shareholders' meeting and openness on the subject of control positions during dialogue with enterprises.

Eumedion is also proposing two specific action points which will be open for debate:

• Major shareholder involvement in the selection of supervisory directors as per the Swedish model
• Drafting of a Dutch code for institutional investors, possibly modelled on the FRC's Stewardship Code

Voting dividends come under scrutiny with the clear observation that financial incentives to vote do not encourage informed voting pointing out that such minded shareholders "will choose the most cost-efficient scenario, which is buying voting recommendations from a proxy adviser and voting ‘blindly’ on the basis of its recommendations".

Links

Eumedion Engaged Shareownership Paper >>