Should asset owners worry about the erosion of shareholder rights?
Good morning. One of the issues that comes up whenever I speak to asset owners, and which was a big talking point at our roundtable in London several months ago, is the decline of shareholder rights.
Trends across the globe can be quite hard to track on this issue, but helpfully for this we have the OECD corporate governance factbook, which is published once a year.
It shows that the number of countries that allow companies to issue shares with no voting rights or preferential rights to dividends has increased four-fold over the past decade.
And the number of countries that require a shareholding of 10 per cent or more to place an item on an agenda has doubled.
Over the past two years, the proportion of countries that allow virtual-only shareholder meetings has gone up to 85 per cent from 76 per cent (before the Covid pandemic virtual meetings were obviously relatively rare - in fact the OECD’s 2015 corporate governance factbook only makes passing reference to Turkey allowing for quaintly-named “electronic attendance” at meetings).
Whether virtual meetings are good or bad depends on who you ask. Some say they allow more people to attend, others say they allow the officials running the meetings too much power over who can or cannot speak, or to kick people out more easily.
Why this is happening also depends on who you ask.
Carmine di Noia, director for financial and enterprise affairs at the OECD, told AOX this reflects a shift towards greater flexibility to encourage companies to list on public markets.
He said: “It is a bit simplistic to say we have weaker corporate governance. It is more a question of recalibration.
“After the financial crisis and Covid we understood that having stability, which is typically guaranteed by companies with some shareholders, is an asset. This recalibration, having more flexibility and keeping an adequate level of investor protections, is about having capital markets which remain attractive.
“Capital markets are really important because they are the only way to finance big initiatives. They also make it easier for citizens to participate, directly or indirectly.”
Jen Sisson, chief executive of asset-owner corporate governance lobby group ICGN, said it did not necessarily follow that looser standards would lead to more IPOs and countries risked diluting shareholder rights for no benefit.
She said: “Governance rules may be an easy lever to pull, but policymakers should not confuse lighter safeguards with a stronger market. The UK experience should caution against assuming that relaxing governance safeguards will, by itself, revive IPO activity.
“The aim should be to attract companies and capital together. Strong shareholder rights help underpin the investor confidence on which successful public markets depend.”
Sisson added: "When voting power is disconnected from economic ownership, shareholders can bear most of the risk while having little say over the company’s direction. That can entrench control and make it harder to challenge boards and management when performance or governance falls short."
The news is also not uniformly bad. Between 2019 and 2025 the proportion of countries where shareholders have a binding vote on the level of director remuneration has increased to 54 per cent from 37 per.
But nonetheless Drew Hambley, investment director of global stewardship at Calpers, has said investors face “significant headwinds”, citing the SEC’s looming removal of rule 14a-8, which enables shareholders to submit proposals to companies.
This has been described by law firm A&O Shearman as “one of the most meaningful changes to the shareholder engagement landscape” since the rule was adopted in 1942.
