Role of Institutional Investors in Promoting Good Corporate Governance.

139 Pages·2012·1.642 MB·English

by  OECD

Corporate Governance C
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The Role of Institutional Investors in Promoting o
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Good Corporate Governance e
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Contents rn The Role of Institutional
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Executive Summary n
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Assessment and Recommendations Investors in Promoting Good
Part I Overview
Chapter 1. The Structure and Behaviour of Institutional Investors
Corporate Governance
Part II In-depth Country Reviews on the Role of Institutional Investors in Promoting Good Corporate
Governance
Chapter 2. Australia: The Role of Institutional Investors in Promoting Good Corporate Governance
Chapter 3. Chile: The Role of Institutional Investors in Promoting Good Corporate Governance
Chapter 4. Germany: The Role of Institutional Investors in Promoting Good Corporate Governance T
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Annex A. The Questionnaire of the OECD Corporate Governance Committee e
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Annex B. The Data Requested in the Questionnaire of the OECD Corporate Governance Committee o
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Please cite this publication as:
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OECD (2011),The Role of Institutional Investors in Promoting Good Corporate Governance, Corporate Governance, e
r
OECD Publishing. n
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http://dx.doi.org/10.1787/9789264128750-en n
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ISBN 978-92-64-12874-3 -:HSTCQE=VW]\YX:
26 2011 11 1 P

Corporate Governance
The Role of Institutional
Investors in Promoting
Good Corporate
Governance
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Please cite this publication as:
OECD (2011), The Role of Institutional Investors in Promoting Good Corporate Governance, Corporate
Governance, OECD Publishing.
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FOREWORD
Foreword
T
his report presents the results of the second thematic peer review based on the OECD Principles
of Corporate Governance. The report is focused on the role of institutional investors in promoting
good corporate governance practices including the incentives they face to promote such outcomes. It
covers 26 different jurisdictions, including in-depth reviews of Australia, Chile and Germany.
The report is based in part on a questionnaire that was sent to all participating jurisdictions in
January 2011 (see Annex A). All countries were invited to respond to the first question so as to
provide an overall context within which the review would take place. The three jurisdictions that
were subject to the in-depth review were invited to complete all questions.
The report first reviews what is known about the institutional investor landscape including the
behavioural codes and legal framework. It then describes what is known about the incentives that
condition their actions before considering the record of engagement and voting. The second part
comprises the three country reviews. The report was prepared by Grant Kirkpatrick, Héctor Lehuedé
and Kenji Hoki with inputs from Simon Wong and Marco Morales and approved for publication
under the authority of the OECD Corporate Governance Committee in August 2011.
The OECD corporate governance peer review process is designed to facilitate effective
implementation of the Principles and to assist market participants and policy makers to respond to
emerging corporate governance risks. The reviews are also forward looking so as to help identify, at
an early stage, key market practices and policy developments that may undermine the quality of
corporate governance. The review process is open to OECD and non-OECD jurisdictions alike.
THE ROLE OF INSTITUTIONAL INVESTORS IN PROMOTING GOOD CORPORATE GOVERNANCE © OECD 2011 3

TABLE OF CONTENTS
Table of Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Assessment and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Part I
Overview
Chapter 1. The Structure and Behaviour of Institutional Investors . . . . . . . . . . . . . . . . 19
1.1. Background, objectives and issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.2. The institutional investor landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1.3. Codes, legal frameworks and disclosure requirements . . . . . . . . . . . . . . . . . . . 32
1.4. Co-operation between investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.5. Investment behaviour of institutional investors: the driving forces . . . . . . . . 40
1.6. The voting and engagement record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Part II
In-depth Country Reviews
on the Role of Institutional Investors
in Promoting Good Corporate Governance
Chapter 2. Australia: The Role of Institutional Investors in Promoting Good
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
2.1. Institutional investor landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
2.2. Legal rules and other guidance relating to shareholder rights
and responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
2.3. Exercise of shareholder rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
2.4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Annex 2.1: Summary of legal provisions relating to the fiduciary
responsibilities of institutional investors in Australia . . . . . . . . . . . . . . . . . . . . . . . . 86
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Chapter 3. Chile: The Role of Institutional Investors in Promoting Good
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.1. The corporate governance landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
3.2. Legal and regulatory framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
THE ROLE OF INSTITUTIONAL INVESTORS IN PROMOTING GOOD CORPORATE GOVERNANCE © OECD 2011 5
TABLE OF CONTENTS
3.3. Exercise of shareholder rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
3.4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Chapter 4. Germany: The Role of Institutional Investors in Promoting Good
Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
4.1. The corporate governance landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4.2. Institutional investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
4.3. Exercise of shareholder rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
4.4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Annex A. The Questionnaire of the OECD Corporate Governance Committee . . . . . . . 131
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Annex B. The Data Requested in the Questionnaire of the OECD
Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Tables
1.1. Financial assets by institutional investors in other jurisdictions . . . . . . . . . . . 29
1.2. Largest global investment managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.3. Ownership structure of India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
1.4. Historical average holding period (years) by type of investors in TSE . . . . . . . 32
1.5. Summary of the status of the Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.1. Australia’s superannuation industry (as at Dec 2010) . . . . . . . . . . . . . . . . . . . . . 71
2.2. Recent trends in the number of Australian superannuation
industry by entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2.3. IFSA Blue Book - Summary of guidelines for fund managers . . . . . . . . . . . . . . 75
2.4. ACSI guide for superannuation trustees on the consideration
of ESG risks in listed companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2.5. ACSI guide for fund managers and consultants on the consideration
of ESG risks in listed companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2.6. Substantial no votes in remuneration reports in 2009 . . . . . . . . . . . . . . . . . . . . 84
3.1. Ownership concentration (average per year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
3.2. Pension funds’ Investments in Chilean corporate Assets . . . . . . . . . . . . . . . . .    9 7
3.3. AFPs ownership in companies renewing boards per year . . . . . . . . . . . . . . . . . 103
3.4. Companies renewing their boards by year and by size of the board . . . . . . . . 103
3.5. Directors elected by AFPs by company according to % of votes . . . . . . . . . . . . 103
3.6. Percentage of companies where AFPs elected one or more directors
per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
3.7. Independent directors’ profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
4.1. Ownership concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 13
4.2. Average shareholder turnout is reasonable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
4.3. Shareholder dissent remain low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
4.4. Shareholder dissent depends on the type of resolution . . . . . . . . . . . . . . . . . . . 125
6 THE ROLE OF INSTITUTIONAL INVESTORS IN PROMOTING GOOD CORPORATE GOVERNANCE © OECD 2011
TABLE OF CONTENTS
Figures
1.1. Ownership structure in selected OECD countries . . . . . . . . . . . . . . . . . . . . . . . . 20
1.2. Financial assets under management by institutional investors
in OECD countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.3. Type of financial assets managed by the industry (in trillion USD) . . . . . . . . . 27
1.4. Shares and other equity by class of institutional management . . . . . . . . . . . . 27
1.5. Percentage of assets held as “shares and other equity” by type
of institutional asset owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1.6. Share of financial assets held by institutional asset managers in 2009 . . . . . . 28
1.7. Ownership by domestic institutional investors and foreign investors
in selected countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
1.8. Average holding period on major stock exchanges (number of years) . . . . . . . 31
1.9. Voting decision making authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
1.10. Voting process in Europe (simplified) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
1.11. Estimated minority shareholder turnout in Europe . . . . . . . . . . . . . . . . . . . . . . 57
1.12. Clustering of shareholder meetings in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2.1. Equity holdings by all types of investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.1. Chilean listed market capitalisation to GDP (%) . . . . . . . . . . . . . . . . . . . . . . . . . . 92
3.2. Number of Chilean listed companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
3.3. Turnover on Chilean listed market (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
3.4. Market ownership concentration (three largest shareholders) . . . . . . . . . . . . . 95
3.5. Assets under administration by type of Institutional Investors . . . . . . . . . . . . 96
3.6. Evolution of pension fund portfolios (per sector) . . . . . . . . . . . . . . . . . . . . . . . . . 96
3.7. Pension fund investment in Chilean corporate assets
(as % of total assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
4.1. Equity holdings by all types of investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
THE ROLE OF INSTITUTIONAL INVESTORS IN PROMOTING GOOD CORPORATE GOVERNANCE © OECD 2011 7