The “invisible” hand: views from UK institutional investors

• DOI: https://doi.org/10.1108/CG-11-2017-0264
• Date: 03 December 2018
• Pages: 1074-1088
• Published date: 03 December 2018
• Author: Deborah Allcock
• Subject Matter: Strategy,Corporate governance

The “invisible”hand: views from UK

institutional investors

Deborah Allcock

Abstract

Purpose –Investors arecalled to be good stewards/trustees oftheir investments, often on behalf of third

parties. In lightof this fiduciary responsibility, and the conundrumof public criticism potentially impacting

on share price, this paper aims to use the basisof the UK governance code to explore what important

dialogueinvestors really have with their holdings to supportgood governance.

Design/methodology/approach –Semi-structured telephone interviews with eight institutional

investors explore governanceissues and investor company dialogue,giving insights into the aspects of

the importanceof their part in the UK corporate governancecode.

Findings –Rather than being sleeping lions, investors positively engage with companies, with regular

communication being high on their agenda and not always via the annual general meeting. There is a

preferenceto engage directly with the company rather thanin public view or via share dumptin. Thus, we

often do not see their actions around their fiduciary duties as often they avoid public criticism or any

visibilitythat could do reputational harm and decreasecompany value.

Research limitations/implications –This dialogue was just before the point of the exposure of the

financial crisis; however, it shows the importance that investors give to taking their responsibilities

seriously. Importantly,it provides a springboard for further debate following the financialcrises and the

updatesof the financial environment.

Practical implications –Even though policy seeks engagement,the nuances of the investor dialogue

are under explored compared to visible quantitative metrics. This dialogue assures that investors are

active,even if their engagement is not public and can be deemedas hidden.

Originality/value –Complementing quantitative studies, this paper explores a qualitative approach,

uniquelysharing insights into a hidden and littleexplored world of fiduciary dialogue.

Keywords Corporate governance, Institutional investors, Shareholders, Shareholder activism

Paper type Research paper

1. Introduction

Corporate governance, and in particular shareholder activity, has become ever more

dominant in the press with growing interest in the shareholder vote and shareholder

engagement. Within the UK, the UK Corporate Governance Code (Financial Reporting

Council, 2016) is deemed to be the gold standard for “best practice”, and listedcompanies

are urged to either comply with the code or explain their governance structures

accordingly. Since its introduction, [the first version of The Combined Code was published

in 1998 (Hampel,1998a, 1998b)], studies have looked to see the level of corporate

compliance, and research shows for the UK, this has been steadily rising (Conyon and

Peck, 1997;Grant Thornton, 2007;Grant Thornton Governance Institute, 2016). There has,

however, been debate about the role of the institutional investor as an effective monitor of

governance aspects of the corporate company(Jensen, 1993). The presence of institutional

investors in the stock market is not uncommon, and whilst investor forums such as the

Association of British Insurers and the National Association of Pension Funds advocate that

investors are proactive in their monitoring role, little has been published beyond the realms

Deborah Allcock is Subject

Leader, Strategy and

International Business at

Huddersfield Business

School, University of

Huddersfield,

Huddersfield, UK.

Received 3 November 2017

Revised 1 March 2018

12 March 2018

Accepted 26 March 2018

PAGE1074 jCORPORATE GOVERNANCE jVOL. 18 NO. 6 2018,pp. 1074-1088, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI10.1108/CG-11-2017-0264