Report: More Investors Worldwide Becoming Governance Activists

In a survey on the state of global corporate governance, the Economist Intelligence Unit (EIU) said that 74% of 310 senior asset managers polled around the world said shareholders were becoming more active in influencing how companies they own are operated, Reuters reported. The report cited as evidence recent shareholder fights at companies such as GlaxoSmithKline whose investors voted in May against what was seen as an over-generous remuneration package for its chief executive.

The report also said that boards – some of which have been accused of acting merely as rubberstamps for executive decisions – have also begun more readily throwing their corporate weight around. The asset managers polled said they also have also become more aware of issues facing their businesses.

Top management is also now spending more time on corporate governance issues than it did a year ago, the report found. “Everybody is obviously on their guard and therefore having to make sure that they put their own house in order,” Daniel Franklin, the EIU’s editorial director, told Reuters.

High-profile accounting scandals such as those at Enron and WorldCom, which wiped out billions of dollars worth of investor holdings, have lifted corporate governance and investor responsibility issues off the backburner over the past year.

Many asset management companies have beefed up their corporate governance teams, researchers found. Some have launched funds to focus specifically on pressing companies whose shares they own to raise standards as a way to boost investment performance. Others have adopted these so-called engagement policies across all their portfolios.

Researchers said they expected shareholders to continue to be upset by executive pay concerns. The report noted that the appearance of greed by executives was very damaging to company reputations and that shareholders were likely to demand pay that properly reflected performance.

On a regional basis, the report said that Japan was particularly likely to come under scrutiny. Japanese companies made only marginal improvements in governance over the past year, and the country has the furthest to go in improving standards, report said.