Promoting Corporate Governance for Sustainability through Shareholder Stewardship : A Critical Analysis of the UK’s Shareholder Stewardship Regulatory Regime

Savva, Rafael and Milman, David (2022) Promoting Corporate Governance for Sustainability through Shareholder Stewardship : A Critical Analysis of the UK’s Shareholder Stewardship Regulatory Regime. PhD thesis, Lancaster University.

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Abstract

The Thesis is concerned with the regulatory concept of shareholder stewardship in the UK and the extent to which it provides the normative premises required through the legal instruments adopted to achieve its objectives to promote the development of corporate governance for sustainability. The Thesis examines this primarily from the perspective of regulating shareholder engagement. It will furthermore consider shareholder stewardship through viewing corporate governance for sustainability as an effort to ensure that companies adopt practices that can lead economies in aggregate to facilitate sustainable development through conforming to the economic paradigm of strong sustainability. Following the consideration of the ways shareholder engagement can be undertaken and its possible effect on corporate governance, the Thesis justifies the existence of shareholder stewardship as a means of ensuring that shareholders and the intermediaries acting on their behalf will promote or contribute to the development of corporate governance for sustainability. Such justification though is supported solely on the basis that shareholder stewardship will seek to attribute the responsibility on shareholders and their intermediaries to engage in a way that promotes or contributes to the development of corporate governance for sustainability. For this to be achieved effectively, the Thesis argues that shareholder stewardship through the regulatory instruments adopted to implement its objectives must be able to address several issues arising from the current standard of shareholder engagement. Policymakers are aware of most of these issues, and expect that the regulation of shareholder engagement through the 2020 Stewardship Code as well as the transposition of the provisions of the Second Shareholder Rights Directive (SRD II) will be able to address these effectively. The Thesis questions the extent to which these will be adequate measures to achieve this, especially when corporate governance for sustainability is seen through the context of adopting practices that can lead economies in aggregate to facilitate sustainable development through conforming to the paradigm of strong sustainability. This argument is made in light of the means by which policymakers endeavour to regulate shareholder engagement through the Stewardship Code and the rules that transposed SRD II, and the objective that is expected from shareholders and their intermediaries to pursue in compliance with them. Having the foregoing in mind, the Thesis argues that the time is ripe to appreciate how the regulation of shareholder engagement by the law will ensure that it meaningfully leads to governing companies in a more sustainable manner. While critical of the way shareholder engagement is regulated, the Thesis argues that shareholder stewardship has the potential to act as a regulatory concept that will be able to achieve this. But for this to be made possible, the Thesis argues that shareholder stewardship’s objectives and rationale must be reconceptualised. The Thesis suggests to understand shareholder stewardship as a regulatory concept that should approach the regulation of shareholder engagement as an aspect of corporate governance that must promote or contribute to corporate governance for sustainability as this is informed by the parameters in need to be in place for economies to conform to the paradigm of strong sustainability. This is suggested by conceptualising the normative account for the corporate objective as an effort to adopt all such practices that would cultivate corporate governance for sustainability for the sake of companies as legal persons within a context that is informed by the parameters that can lead economies to conform to strong sustainability. Future research will shed light on the means by which this suggestion can materialise in terms of regulating shareholder engagement. Regardless, the Thesis considers that the upholding of shareholder stewardship’s objectives relative to the suggestion made above will be achieved only when the regulation of shareholder engagement is made on a multi-purpose, multi-modal and multi-dimensional basis. While this includes the regulation of shareholder engagement at a soft-law level through the Stewardship Code as well as several disclosure rules, the Thesis argues that shareholder engagement must be regulated more readily and clearly by various areas of law at a hard-law level as well. This includes, among other areas, the regulation of the collective exercise of shareholders’ voting rights as a form of authority that discharges the will of the company as a legal person on its own behalf.