Corporate Governance Going Astray: Executive Remuneration Built to Fail

The Institutional Investor Stewardship Myth: A Theoretical, Legal and Empirical Analysis of Prescribed Institutional Investor Stewardship in a Dutch Context

“…According to Winter (2012), most modern academic thinking on corporate governance still starts from the understanding that in public companies with dispersed ownership an agency relation exists between the managers as agents, whose decisions affect the shareholders as principals.…”

“…It is surprising, therefore, that the agency theory is still the theory most often referenced in the corporate governance debate, since the assumptions that shareholders own the corporation, that they are residual claimants, and that they are principles who hire directors as their agents are 'factually incorrect' (Stout (2012), p. 37-45) (see section 2.4 of the book). It can be argued that using the agency theory as the most dominant theoretical paradigm in the corporate governance debate (Winter (2012);Mallin (2009)) is a symptom of teleopathic fixation on one dominant theory. In addition, using the agency theory as the most dominant theoretical paradigm in the corporate governance debate on the one hand and assuming shareholders to have a responsibility to act as stewards in respect of their investee company on the other is -based upon the agency theoryfundamentally incongruous and renders institutional investor stewardship as prescribed by corporate governance codes an unrealistic concept, a concept impossible to achieve.…”

“…Winter (2012) concludes that most modern academic thinking on corporate governance still starts from the assumptions underlying the agency theory. Corporate law also assumes an agency relationship (Kraakman (2009)) between managers and shareholders, in which shareholders are assumed to pursue their own interests, which are not necessarily in line with those of the company.…”

“…In this case, acting as a steward is prescribed by having signed off on ESG. To date, numerous universal owners have chosen to confuse 'form' with 'substance' (Kiernan (2007);Winter (2012)). …”

The role of institutional investors in enacting stewardship by corporate boards

“…Agency theory (Jensen and Meckling, 1976; Fama, 1980; Eisenhardt, 1989; Schleifer and Vishny, 1997) still is the leading paradigm in contemporary thinking about corporate governance. Company law mechanisms still assume an agency relationship between managers and shareholders (Winter, 2012; Hart, 1995; Hansmann and Kraakman, 2004). In such a relationship of asymmetric information, managers (as agents) and shareholders (as principals) are expected to have potentially conflicting interests that need monitoring and incentive/sanctioning mechanisms to align interests.…”