Shareholder engagement is pivotal in corporate governance, evolving beyond formal resolutions to impact business decisions. This chapter unveils the typically undisclosed dynamics of board-shareholder engagement through a survey of 171 SEC-registered corporations, targeting corporate secretaries, general counsel, and investor relations officers. The survey was complemented by a review of the disclosure on shareholder voting and engagement included in proxy statements filed by Russell 3000 companies during the 2018–2022 meeting seasons. Larger and mid-sized companies more frequently engage than smaller organizations. Engagement, often with major asset managers, can take a confrontational turn, particularly with hedge funds at smaller firms. Topics include executive incentive plans, ESG metrics, GHG emission reduction, workforce diversity, pay equity, and political spending. The study reveals that engagement significantly influences corporate practices, leading to changes, withdrawal of proposals, alterations in proxy votes, and the inclusion of engaged shareholder-nominated directors in management slates.

Capital market, regulatory and technological developments have created investor appetite and capacity for engagement with public companies. Our paper explores key engagement mechanisms and techniques employed by public company shareholders. First, shareholder-company engagement is a multi-dimensional, evolving phenomenon. Shareholders use a range of techniques including shareholder meetings, behind-the-scenes interactions, public campaigns, and online technologies. Second, shareholders mix and match different engagement techniques to leverage governance influence. Third, shareholders increasingly undertake their engagement activities collectively, highlighting growing capacity to overcome traditional collective action challenges. Finally, the shareholder meeting remains an important engagement mechanism. Its formal, in-person and public nature sets it apart from other mechanisms and gives it unique potential as a forum for scrutiny and accountability. Although low attendance rates indicate that shareholders do not routinely utilise the meeting to maximum effect, it is better conceived as having contingent significance because its potential as an accountability mechanism can prove critical when a company experiences serious governance problems.

Corporate governance debates have undergone a fundamental shift, with environmental,social and governance (“ESG”) issues coming to the forefront of decision-making by boards, executives and shareholders. Across a spectrum ofstakeholders, companies and their boards face pressure to incorporate ESG considerations into their business strategies, including strategies around merger and acquisition (“M&A”) transactions. This chapter addresses how the growth of ESG is poised to affect board and shareholder engagement in M&A. For boards evaluating M&A deals, ESG factors are emerging as critical to all aspects of dealmaking, including selection of targets and buyers, due diligence, governance and integration, and financing. The ESG pressures on M&A deals also influence corporate governance in M&A – implicating board strategy and oversight in M&A, as well as shareholder engagement in M&A. In an ideal world, ESG information can help enhance board and shareholder decision-making around M&A. Yet, whether ESG considerations are likely to do so remains uncertain.

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.

Ownership structure changes, like capital concentration in funds, theoretically shouldn’t alter passive incentives, given fee competition and single-company engagement costs. Free rider problems also contribute to passivity. Despite these, recent factors boosting involvement include: (i) the influence of major investment funds, (ii) growing use of proxy advisors by institutional investors, (iii) political pressure and stewardship considerations, and (iv) collaboration, especially among hedge funds. ESG investing could be a game changer due to millennial demand, systemic risk reduction, and fee opportunities. This prompts institutional investors to shift from passive to active engagement, fostering collaboration. New collaboration forms include: (i) among major funds, (ii) between hedge and ESG funds (wolf pack activism), (iii) among non-activist institutional investors, and (iv) on new platforms like Climate Action100+ and PRI. Legal risks and obstacles, such as acting in concert, insider trading rules, and antitrust laws, are explored, with suggestions to enhance collaboration opportunities and ways of bolstering opportunities for collaboration.

This chapter examines the impact of insider regulation on the board-shareholder dialogue. It offers a comparative analysis, revealing that EU and UK laws are more restrictive than those in the US. Drawing from this analysis, the paper raises the question of whether the EU should introduce a safe harbour rule to facilitate shareholder engagement through private disclosure of inside information. While shareholder engagement is considered beneficial for corporate governance and long-term firm value, the paper questions the necessity of selectively disclosing inside information to investors. It argues that mandating greater transparency in the board-shareholder dialogue is preferable, ensuring all shareholders have equal access to information. The feasibility and practicality of a safe harbour rule are doubted due to associated costs and challenges. In conclusion, the chapter rejects proposals to enact such rules, citing limited benefits and substantial costs.

This chapter delves into the ongoing debate surrounding institutional investor engagement, spanning sporadic voting to strategic shareholder activism. Focusing on the stewardship role of institutional investors as shareholders, referred to as shareholder stewardship, it contextualizes this in a historical context within corporate governance. The focus is placed on micro-level shareholder stewardship – how institutional investors monitor and engage with specific companies in their portfolios – emphasizing its alignment with traditional notions of shareholder engagement. The chapter illustrates that micro-level shareholder stewardship extends beyond mere investor engagement. It involves firm-level shareholder engagement to improve long-term company performance, alongside a commitment to meeting ultimate beneficiaries’investment needs and serving public interests, such as addressing saver needs and mitigating externalities, like climate change. Furthermore, the chapter identifies hedge-fund-style activists as key players in micro-level shareholder stewardship, offering new empirical evidence on their global scale. Despite variations, a category of investors – the activist shareholder stewards – emerges from stewardship disclosures, fulfilling the stewardship role in corporate governance.

In the United States, institutional investors, such as BlackRock, Vanguard, and State Street, have been instrumental in advancing ESG and related stakeholder concerns. Through open letters and active engagement, these investors have outlined their expectations regarding ESG practices, while providing guidance on disclosure practices that ensure corporations appropriately address ESG. Institutional investors also have utilized the shareholder proposal process to encourage corporations to address critical ESG concerns. Nonetheless, critics argue that linking ESG and stakeholder interests to investors’ profit motives may hinder progress, limiting any focus on ESG solely to issues that can be linked to measurable economic benefits. This chapter offers a more optimistic perspective. It argues that shareholders have been strong advocates for stakeholders, moving the needle around several critical ESG issues including disclosure, board oversight, and increased corporate commitment to specific ESG goals. This chapter further argues that shareholders may be best positioned to ensure that corporations maintain a long-term focus on ESG and other stakeholders. Thus, rather than hindering progress, this chapter posits that the connection between ESG and financial returns may enhance corporate focus on ESG.

This introductory chapter provides the reader with data on institutional investors’ role in the governance of listed companies in the US and Europe. Drawing from various databases, we sketch out the phenomenon of share ownership reconcentration in the hands of institutional investors across jurisdictions, tracking the nationality and ownership of the largest asset managers and draw some implications therefrom. In particular, we look into whether divergence in ownership patterns (the presence vs absence of a controlling shareholder) and the identity and characteristics of asset managers may lead to divergence in the incentives structure for, and the focus of, shareholder engagement on the two sides of the Atlantic. Finally, we provide the reader with a roadmap of the book contents.

The SEC’s proposed climate disclosure rule has generated substantial controversy. Among the concerns raised by commentators is that the rule is unnecessary because investors can obtain sufficient climate-related disclosure throughprivate ordering. We examine one mechanism for private ordering–the shareholder proposal rule. We empirically analyze shareholder proposals requesting environmental and social disclosures during the 2021 and 2022 proxy seasons. Contrary to some assertions, we find that investors submitted hundreds of these proposals, many of which received substantial levels of investor support. We further note the significant number of proposals that are settled and withdrawn, indicating, in many cases, that the issuer committed to providing the requested disclosure. We conclude that there is substantial investor demand for greater sustainability disclosure. In modifying the mandatory disclosure regime, the SEC should look to shareholder proposals as a source of guidance and seek to complement these private ordering efforts.

American politics has become sharply polarized. Partisan deadlock has prevented the addressing of critical public policy issues. A prime example is Congress’s inability to pass campaign finance legislation. Corporations spend unlimited amounts of company funds to promote management’s preferred candidates without disclosure. The distortive effects of large unaccountable corporate political expenditures are evident, and the opportunity for corrupting our politics is clear. In addition, large undisclosed corporate contributions pose a threat to a well-functioning marketplace and democracy. This chapter addresses the challenge of addressing corporate political spending through the informal, non-state suasion and advocacy of the nonprofit Center for Political Accountability. CPA is a case study in successful private ordering, prompting S&P 500 companies to disclose corporate political spending; develop policies that will ensure good compliance and governance; adopt codes of conduct to reflect and inspire pro-accountability behavior; and successfully compete with other firms for best disclosure and accountability practices.

This chapter analyses the ownership of Swiss corporations in the last decades. A main finding is that in listed companies, there has been a substantial decrease of the fraction of ownership by the top three shareholders. For example, for the listed companies ranked 21 to 100, the median stake of the three largest shareholders dropped from 42.5% in 2008 to 36.6% in 2018. More generally, the concentration of the disclosed shareholders has decreased. Non-domestic investors hold large stakes in companies listed in Switzerland and have become more important in the largest, most mature companies – not only have their share ownership significantly increased, but they are also more active in exercising their voting rights and in engaging with companies. We also provide some evidence, drawing on a series of surveys of market participants, that these developments, especially the presence and increasing activity of non-domestic investors, have direct implications on the governance practice of companies listed in Switzerland.

In our paper, we survey the corporate landscape regarding shareholder engagement in Germany. We identify two main factors that constrain the possibilities of shareholders to engage in their company’s business decisions. The first factor concerns the legal design of the Aktiengesellschaft (AG) and in particular its two-tier board structure. A second factor concerns restrictions of shareholders’ involvement in the management of companies, especially when employees have a say in business affairs, due to the German co-determination rules. Empirically, shareholder opposition against management decisions plays a traditionally minor role. However, recent events like the dismissal of the managements’ discharge by the shareholders of Bayer in 2019 raise the question whether a new period of ‘shareholder activism’ is just about to begin. Recent developments rooting in the COVID-19-pandemic may well contribute to that transformation.

Legal means of shareholder engagement in Australia vary considerably, ranging from reliance on shareholder rights conferred under the Corporations Act 2001 (Cth) to reliance on class actions seeking the collective enforcement of legal rights arising from corporate conduct. This chapter offers an introduction to Australia’s corporate governance framework in the context of corporate decision making and the exercise of shareholders voting rights. The balance of power between shareholders and the board of directors, and its legal impact on shareholder engagement, is highlighted. Insights are provided into the legal means of shareholder engagement in Australia and the manner in which votes are exercised. There is growing evidence of shareholder apathy and the dominance of institutional investors and proxy advisors. The chapter charts the recent trend towards active shareholder engagement on ESG and human rights issues at Annual General Meetings, notwithstanding the limited opportunities to propose advisory or non-binding resolutions at meetings.

The chapter lays a roadmap for the Handbook on Shareholder Engagement and Voting. It defines shareholder engagement as shareholders’ involvement with their investee companies, using their shareholder rights and powers, both formal and informal (such as voting rights), to influence corporate affairs inside and outside general meetings of shareholders. The chapter further discusses the Handbook’s overall methodological considerations, that is, a sophisticated functionalist approach, with a combined use of doctrinal and empirical methods. The chapter proceeds to elaborate on the framework of research questions that guide the Handbook’s chapter contributions on 19 jurisdictions around the globe. The framework comprises three groups of questions: general jurisdictional features, legal means of shareholder voting and engagement, as well as shareholder voting and engagement in practice. The chapter concludes with a brief outline of the Handbook’s structure.

Empowerment of minority shareholders has been a central theme of China’s corporate governance movements in the past two decades. Cumulative voting and the majority of the minority rule are exemplary of Chinese reformers’ efforts to strengthen shareholders’ rights to vote. Other shareholders’ rights, such as the right to call a meeting, the right to propose, and the right to information, are also in place and, at least in theory, enable public shareholders to engage the controlling shareholders of their investee companies. The practical effect of these legal rights needs to be evaluated in the context of China’s path-dependent conditions, notably the prevalence of concentrated share ownership, the relatively weaker presence of institutional investors, and the approach to allocating corporate power which centres on the shareholders meeting.

This chapter addresses the voting and other engagement practices in the 19 jurisdictions in this Handbook on Shareholder Engagement and Voting. First, it is shown that shareholder participation in AGMs differs significantly between countries, which is related to differences in ownership structures, ownership concentration, the powers of the general meeting of shareholders and the other means shareholders have for voicing their interests. Similarly, the powers of the general meeting of shareholders differ substantially between the different countries. Common shareholder voting items are relatively few but include some kind of vote on board nominees and some say over pay although in some countries compensation is an exclusive business of the board of directors. Shareholder proposals seem to be more common in common law countries where it is relatively easy to table a proposal. Questioning the board at general meetings is a widespread practice of especially small shareholders, contrary to many other shareholder engagement techniques commonly used by (institutional) investors. The wide diversity of engagement practices shows that an optimal and efficient division of powers between shareholders and board has not yet been found.