Corporate Governance The Role of Institutional Investors ...

1 Please cite this publication as:OECD (2011),The Role of Institutional Investors in Promoting Good Corporate Governance , Corporate Governance , OECD work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit , and do not hesitate to contact us for more GovernanceThe Role of Institutional Investors in Promoting Good Corporate GovernanceContentsExecutive SummaryAssessment and RecommendationsPart I OverviewChapter 1. The Structure and Behaviour of Institutional InvestorsPart 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 GovernanceChapter 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 Annex A. The Questionnaire of the OECD Corporate Governance CommitteeAnnex B.

2 The Data Requested in the Questionnaire of the OECD Corporate Governance CommitteeISBN 978-92-64-12874-326 2011 11 1 P-:HSTCQE=VW]\YX:The Role of Institutional Investors in Promoting Good Corporate GovernanceCorporate GovernanceCorporate GovernanceThe Role of Institutional Investors in Promoting Good Corporate GovernanceCorporate GovernanceThe Role of Institutional Investors in Promoting Good Corporate GovernanceThis work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or 978-92-64-12874-3 (print) ISBN 978-92-64-12875-0 (PDF) Series: Corporate Governance : ISSN 2077-6527 (print) ISSN 2077-6535(PDF)The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities.

3 The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credit: Cover to OECD publications may be found on line at: OCDE 2011 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation du droit de copie (CFC) at cite this publication as:OECD (2011), The Role of Institutional Investors in Promoting Good Corporate Governance , Corporate Governance , OECD : THE ROLE OF Institutional Investors IN PROMOTING GOOD Corporate Governance OECD 20113 ForewordThis report presents the results of the second thematic peer review based on the OECD Principlesof Corporate Governance .

4 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 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.

5 The report was prepared by Grant Kirkpatrick, H ctor Lehued 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. TABL E O F C O N T E N T S THE ROLE OF Institutional Investors IN PROMOTING GOOD Corporate Governance OECD 20115 Table of ContentsExecutive Summary .. 9 Assessment and Recommendations .. 11 Part IOverviewChapter 1.

6 The Structure and Behaviour of Institutional Investors .. Background, objectives and issues .. The Institutional investor landscape .. Codes, legal frameworks and disclosure requirements .. Co-operation between Investors .. Investment behaviour of Institutional Investors : the driving forces .. The voting and engagement record .. 50 Notes .. 61 References .. 63 Part IIIn-depth Country Reviews on the Role of Institutional Investors in Promoting Good Corporate GovernanceChapter 2. Australia: The Role of Institutional Investors in Promoting Good Corporate Governance .. Institutional investor landscape .. Legal rules and other guidance relating to shareholder rights and responsibilities .. Exercise of shareholder rights .. Conclusions .. 85 Annex : 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 .

7 The Corporate Governance landscape .. Legal and regulatory framework .. 98 TABLE OF CONTENTSTHE ROLE OF Institutional Investors IN PROMOTING GOOD Corporate Governance OECD Exercise of shareholder rights .. Conclusions .. 107 Notes .. 108 References .. 108 Chapter 4. Germany: The Role of Institutional Investors in Promoting Good Corporate Governance .. The Corporate Governance landscape .. Institutional Investors .. Exercise of shareholder rights .. 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 .. Financial assets by Institutional Investors in other jurisdictions .. Largest global investment managers .. Ownership structure of India .. Historical average holding period (years) by type of Investors in TSE.

8 Summary of the status of the Principles .. Australia s superannuation industry (as at Dec 2010) .. Recent trends in the number of Australian superannuation industry by entities .. IFSA Blue Book - Summary of guidelines for fund managers .. ACSI guide for superannuation trustees on the consideration of ESG risks in listed companies .. ACSI guide for fund managers and consultants on the consideration of ESG risks in listed companies .. Substantial no votes in remuneration reports in 2009 .. Ownership concentration (average per year) .. Pension funds Investments in Chilean Corporate Assets .. AFPs ownership in companies renewing boards per year .. Companies renewing their boards by year and by size of the board .. Directors elected by AFPs by company according to % of votes .. Percentage of companies where AFPs elected one or more directors per year .. Independent directors profile.

9 Ownership concentration .. shareholder turnout is reasonable .. Shareholder dissent remain low .. Shareholder dissent depends on the type of resolution .. 125 TABL E O F C O N T E N T S THE ROLE OF Institutional Investors IN PROMOTING GOOD Corporate Governance OECD structure in selected OECD countries .. assets under management by Institutional Investors in OECD countries .. of financial assets managed by the industry (in trillion USD) .. and other equity by class of Institutional management .. of assets held as shares and other equity by type of Institutional asset owner .. of financial assets held by Institutional asset managers in 2009 .. by domestic Institutional Investors and foreign Investors in selected countries .. holding period on major stock exchanges (number of years) .. decision making authority .. process in Europe (simplified) .. minority shareholder turnout in Europe.

10 Of shareholder meetings in Europe .. holdings by all types of Investors .. listed market capitalisation to GDP (%) .. of Chilean listed companies .. on Chilean listed market (%) .. ownership concentration (three largest shareholders) .. under administration by type of Institutional Investors .. of pension fund portfolios (per sector) .. fund investment in Chilean Corporate assets (as % of total assets) .. holdings by all types of Investors .. 115 The Role of Institutional Investors in Promoting Good Corporate Governance OECD 20119 Executive SummaryThe OECD Principles of Corporate Governance embrace the underlying assumption that shareholders can best look after their own interests, provided they have sufficient rights and access to information. The increased presence of large Institutional Investors in the last decade fostered the expectation that a new breed of highly skilled and well resourced professional shareholders would make informed use of their rights, promoting good Corporate Governance in companies in which they invest.