Corporate Governance

ISSN :
2077-6535 (online)
ISSN :
2077-6527 (print)
DOI :
10.1787/20776535
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This series of books addresses issues related to corporate governance including such issues as board composition and nomination, the role of institutional investors, board incentives, risk management and  supervision and enforcement.

Also available in: French
 
The Role of Institutional Investors in Promoting Good Corporate Governance

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Author(s):
OECD
Publication Date :
25 Nov 2011
Pages :
136
ISBN :
9789264128750 (PDF) ; 9789264128743 (print)
DOI :
10.1787/9789264128750-en

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This report presents the results of the second thematic peer review based on the OECD Principles of Corporate Governance. The report is focused on the role of institutional investors in promoting good corporate governance practices including the incentives they face to promote such outcomes. It covers 26 different jurisdictions, including in-depth reviews of Australia, Chile and Germany.

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    Foreword
    This report presents the results of the second thematic peer review based on the OECD Principles of Corporate Governance. The report is focused on the role of institutional investors in promoting good corporate governance practices including the incentives they face to promote such outcomes. It covers 26 different jurisdictions, including in-depth reviews of Australia, Chile and Germany.
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    Executive Summary
    The OECD Principles of Corporate Governance embrace the underlying assumption that shareholders can best look after their own interests, provided they have sufficient rights and access to information. The increased presence of large institutional investors in the last decade fostered the expectation that a new breed of highly skilled and well resourced professional shareholders would make informed use of their rights, promoting good corporate governance in companies in which they invest. Those prospects are reflected in Principles II.F and II.G, added in 2004 to cover disclosure of voting policies, managing conflicts of interest and co-operation between investors. However, institutional investors are not like other shareholders but have a unique set of costs, benefits and objectives. Accordingly, they have not always behaved as desired. This report investigates their behaviour by way of three peer reviews on the implementation of Principles II.F and II.G (Australia, Chile and Germany) and a general review of academic research and country experience.
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    Assessment and Recommendations
    The proposition that shareholders can best look after their own interests subject to having sufficient rights and access to information is basic to the OECD Principles and domestic law in many jurisdictions. Nevertheless, at the time of the last revision of the OECD Principles of Corporate Governance in 2004, the need to deal with the emerging reality of large institutional shareholders was already apparent and led to several new principles being agreed by consensus, especially Principles II.F and II.G covering disclosure of voting policies, managing conflicts of interest and co-operation between investors. The Annotations to the Principles went on to note that,
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      The Structure and Behaviour of Institutional Investors
      This chapter discusses the market environment, the legal and regulatory frameworks as well as the incentives of institutional investors in exercising their shareholders rights in a manner that is aligned with the broad market expectation that they will promote better corporate governance.
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      Australia
      This review provides an objective description and analysis of existing institutional investor practices in Australia and their influence on the corporate governance practices of companies in which they invest. It examines different dimensions of institutional investor activism in Australia, including features of the institutional investor landscape, legal rules and other guidance relating to institutional investor responsibilities, and voting and engagement practices.
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      Chile
      This chapter explores the experience of Chilean institutional investors in promoting good corporate governance practices in the companies in which they invest. It documents the influence of institutional investors, particularly the Pension Fund Administrators (AFPs under their Spanish acronym), which is one of the key factors explaining the current corporate governance landscape and the development of its capital market. This report describes the rules, practices and prominent cases that have contributed to shape Chile’s institutional investors behaviour.
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      Germany
      This chapter on Germany describes the structure of institutional investors both domestic and foreign. It then outlines shareholder rights and how institutional investors make use of such rights, including via voting, and to monitor their investee countries. The regulatory framework under which they operate is outlined and a study reported on shareholder turnout at annual meetings of German companies.
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    Annex A: The Questionnaire of the OECD Corporate Governance Committee
    At its meeting on 16-17 November 2010, the OECD Corporate Governance Committee agreed to carry out a thematic peer review on the exercise of ownership rights by institutional investors. The scope of the exercise is presented in the scoping paper DAF/CA/ CG(2010)12, which is annexed in this questionnaire. The review will focus on the implementation of Principle II.F, which addresses the need for institutional investors acting in a fiduciary capacity to disclose their overall corporate governance policies; their procedures for using their voting rights, and; how they manage of conflicts of interest, and Principle II.G, which addresses the right for shareholders to consult with each other. Beyond a review of the implementation of Principles II.F and II.G, the review shall aim at a better understanding of factors that determine to what extent institutional investors make use of their ownership rights and what differences may exist between different categories of institutional investors in this respect. Finally, the exercise shall review the existence and experiences with any statutory regulation or voluntary codes that address the exercise of ownership rights by institutional investors.
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