April 13, 2022 | Documents

Exit vs. voice – this is the general choice that responsible shareholders face when invested in a company that isn’t behaving in a way that aligns with their values. The first option is to dissociate themselves and divest. The second is to engage in dialogue to initiate positive change. The latter strategy refers to active ownership and is the focus of a series of publications by the Enterprise for Society (E4S) Center this April. The first of these papers focuses on the following question: what is active ownership and how is it applied in practice?

  1. Active ownership, through engagement and voting, is growing in popularity among responsible investors and is spreading to more and more asset classes, such as corporate and sovereign bonds and private equity.
  2. Its popularity has been amplified by heightened attention toward environmental, social and governance issues by stakeholders. This has resulted in an increased focus on these issues in the boardroom.  
  3. Some practices, such as the lack of voting rights for exchange-traded fund shareholders or the increase in multi-class share issuance, may be a barrier to this trend.
  4. But the development of investor groups and digitalization tend to favour new approaches to active ownership.

E4S series on active ownership

The first analysis of the E4S series on active ownership, Active ownership: by whom and how?, develops the status quo of this strategy. But what about its impact? In December 2021, E4S studied the impact of divestment as a responsible strategy. The second analysis in the E4S series on active ownership, Active ownership: for what impact? applies the same approach, balancing the benefits and costs for the investor who engages and discusses the reactions and behavioural changes of the target company. To be successful in their engagements, however, investors will need to consider several factors. Active ownership: the keys to success develops the profile of the target company and of the investor, as well as how the characteristics of engagement, can influence the outcome of a shareholder initiative.

Jean-Pierre Danthine, E4S

Florence Hugard, E4S