Institutional investors are organizations that invest money on behalf of their clients or members. They are a diverse group, and their common characteristic is that they are not physical persons. Institutional investors have an important role as owners of companies, and their engagement in corporate governance is crucial for promoting management accountability and improving price discovery and allocative efficiency. As a result, they play a critical role in keeping shareholder value high by reducing agency conflict and promoting good governance.
Institutional investors are important players in corporate governance because of their significant ownership stakes in companies. They have the power to influence corporate decision-making and promote long-term value creation. Institutional investors adopt different methods of engagement, ranging from routine and informal engagement to extraordinary engagement. The degree and quality of institutional investor engagement vary across the globe due to different categories of investors and regulatory frameworks.
Institutional investor engagement in corporate governance has become increasingly important in recent years. They have been instrumental in addressing issues such as executive compensation, board diversity, and climate change. However, there are also concerns about the potential conflicts of interest that arise when institutional investors engage with companies in which they have ownership stakes. As a result, there is a need for greater transparency and accountability in institutional investor engagement to ensure that they act in the best interests of their clients and promote long-term value creation for all stakeholders.
By Roger K. Olsson