The Stewardship Code's Achilles' Heel
| DOI | http://doi.org/10.1111/j.1468-2230.2010.00828.x |
| Published date | 01 November 2010 |
| Date | 01 November 2010 |
| Author | Brian R. Cheffins |
secured on their land. More speci¢cally, it fails to acknowledge that the subprime
crisis should have prompted a rethink by Britain and its development partners
such as theWorld Bank of these strategies for international development.
CONCLUSION
The analysis presented here of recently available policy statements on access to
¢nance and on land tenure has shown how the growth of credit markets and the
formalisation of property rightsare conjoined in think ingabout international devel-
opment. Drawing on the lessons of the past two decades of land reform processes in
Eastern Africa, I have sought in this paper to explore the implications for women of
the apparentlygender-neutral projects of formalisation and ¢nancialisation.
Important changes can be expected in pursuit of a vibrant and pro¢table
¢nance sector. Barriers to access such as lack of suitable documentation will be
addressed through t he issuing of titl e deeds and identity documents; lack of col-
lateral will be tackled byencouraging the use ofland titles as security; and micro-
¢nance initiatives will cometo be used as sifting mechanisms: a means to sortand
identify lower risk borrowers to be ‘graduated’ to the formal banking sector.
Despite saying nothing aboutgendered nature of risk, plans to broaden access to
¢nancial services will strengthen the position of commercial lenders, enabling
them further to resist gender progressive change and to continue to ignore obli-
gations to protect women’s already fragile access to land. As asset-backed lending
develops and mortgages secured on family land are encouraged, I have argued in
this paperthat it will be di⁄cult to reconcile the promotion of ¢nancial inclusion
with the professed aim of international development to end poverty.
The Stewardship Code’s Achilles’ Heel
Brian R. Che⁄ns
n
Many concerned about UK corporate governance have urged those who own equity i n listed
companies to forsake a traditional bias i n favour of passivity and act as responsible, e ngaged‘own-
ers’. The recent¢ nancial crisis has given added impetusto such calls, with the notion of ‘steward-
ship’ taking centre stage and resulting in July 2010 with the launch of a Stewardship Code
targeting UK-based institutional investors.Thi s paper summarises the Stewardship Code initia-
tive and argues that, primarily due to sustained fragmentation of share ownership occurring over
the past 20 years, the Code is unlikely to foster substantially greater shareholder involvementi n
UK corporate governance.
In Britain shareholders have traditionally taken a‘hands o¡’ approach to corporate
governance and refrained from exercising active control over publicly quoted
n
Faculty of Law,University of Cambridge.
The Stewardship Code’s Achilles’ Heel
10 04 r2010The Author.The Modern Law Review r2010 The Modern LawReview Limited.
(2010) 73(6) 985^1025
companies. A ¢nancial journalist observed in 1899 that ‘in practice shareholders
seldom assert their will.They are led and easily led .. . the rule that shareholders
do as they are bidden by their servants (the directors) has very few exceptions.’
1
Matters arguably have changed little since. In a 2009 speech Lord Myners, then
Financial Services Secretary to theTreasury, characterised the institutional inves-
tors who currently dominate share ownership in publicly quoted UK companies
as ‘absentee landlords’.
2
Many concerned about UKcorporate governance have urged those who own
equity in companies listed on the stock market to take a much more ‘hands on’
role in corporate a¡airs. Onerationale is that,if shareholdersstep forwardand take
their role as‘owners’ of companies seriously, this will do a great deal to keepwhat
are nowcommonly referred to as ‘agency costs’ ^ the detrimental e¡ects of man-
agerspursuing their own agendarather than seeking topromote corporate success
^ in check. As Sir DavidWalker said in a 2009 government commissioned report
on the corporate governance of British banks,‘[a] more productive and informed
relationship between directors and shareholders should help directors in better
manageme nt of the company’s a¡airs.’
3
Moreover, from a broad er persp ective,
the exerciseof ‘ownership’ rights by shareholders reputedly w ill enhance the cred-
ibility of the mar ket economy.To quote the Walker Report again,‘The potential ly
highly in£uential position of signi¢cant holders of stock in listed companies is a
majoringredient in the market-based capitalist systemwhich needs to earn and to
be accorded an at least implicit social legitimacy.’
4
The Financial Reporting
Council (FRC), an independent regulator responsible for corporate governance
and ¢nancial reporting that works closely in conjunction with the UK govern-
ment, said similarly in 2010:
‘More e¡ective engagement should improve the governance and performance of
investee companies,ass ist the e⁄cient operationof capital markets and increase con-
¢dence in business. Greater clarity in the respective responsibilities of asset man-
agers and asset owners a nd strengthened accountability of institutional
shareholders to their clients will also strengthen trust in the ¢nancial system.’
5
The recent ¢nancial crisis has fuelled calls for greater shareholder engagement in
corporate governance, with shareholders allegedly failing to step forward appro-
priately when bank executives got out of hand. As a columnist in the Observer
newspaper put it in 2009,‘One of the systemic £aws laid bare in the credit crunch
is an ownership vacuum: the big institutional holders of shares - pension and
1S.F. Van Oss,‘In Hooley Land’ Journal of Fi nance, January 1899,1,11.
2Lord Myners,‘Association of Investment Companies’(speech by the Financial Services Secretary)
(21 April 2009) at http://webarchive.nationalarchives.gov.uk/20100407010852/http://www.
hm-treasury.gov.uk/speech_fsst_210409.htm (last visited 10 July 2010).
3Sir D.Walker, A Review of Corporate Governance in UK Banks and Other Financial Industry Entities:
Final Recommendations (hereinafter Walker Report) (26 November 20 09), 78 at http://www.
hm-treasury.gov.uk/d/walker_review_261109.pdf (last visited 4 March 2010).
4ibid,70.
5Financial Reporting Council, Consultation on a Stewardship Code forInstitutional Investors, January
2010, at http://www.frc.org.uk/images/uploaded/documents/Stewardship%20Code%20Consul-
tation%20January%202010.pdf (last visited 5 July 2010).
Brian R. Che⁄ns
10 05
r2010The Author.The Modern Law Review r2010 The Modern LawReview Limited.
(2010)73(6) 985^1025
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