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Engaged versus Disengaged Ownership: The Case of Pension Funds in the UK
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Dr Anna Tilba
Tilba A, McNulty T
Corporate Governance: An International Review
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Manuscript Type: Empirical
Research Question/Issue: This study examines how the practice of pension fund investment management informs the ownership behavior of pension funds vis-à-vis investee corporations.
Research Findings/Insights: Using data from: 35 in-depth semi-structured interviews with pension fund trustees, executives, investment officers and financial intermediaries; documentary analysis; and observations of four fund investment meetings, we find a variation in pension fund behavior, where a very small number of well-resourced and internally managed pension funds exhibit engaged ownership behavior. By contrast, the vast majority of pension funds operate at a considerable distance from their investee corporations having delegated pension fund investment management to a chain of external relationships involving actuaries, investment consultants, and fund managers. These relationships are laced with divergent interests and influence dynamics, which explain why these pension funds give primary emphasis to fund investment performance and display little concern for matters of ownership and corporate governance.
Theoretical/Academic Implications: The “New Financial Capitalism” is characterized by ownership concentration, yet at the same time liquidity and a lack of institutional investor engagement with corporations. Findings suggest that the principal-agent view of the relationship between institutional investors and corporate managers is more assumed than demonstrated. This widely assumed theory of investor ownership and control is shown to be contingent upon the meanings and practices that underpin investment fund management by institutions.
Practitioner/Policy Implications: Shareowner engagement is proposed as a solution to problems of corporate governance. Findings about the relationships within the investment chain undermine the notions of pension funds behaving as owners and upholding corporate governance and accountability. This raises skepticism about realizing aspirations for engaged ownership and shareowner stewardship contained in institutional investors’ engagement codes such as the Stewardship Code (2010) and contemporary policy debate in the UK and beyond.
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