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Leech, Dennis --- "Incentives to Corporate Governance Activism" [2003] ELECD 89; in Waterson, Michael (ed), "Competition, Monopoly and Corporate Governance" (Edward Elgar Publishing, 2003)

Book Title: Competition, Monopoly and Corporate Governance

Editor(s): Waterson, Michael

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760894

Section: Chapter 10

Section Title: Incentives to Corporate Governance Activism

Author(s): Leech, Dennis

Number of pages: 22

Extract:

10. Incentives to corporate governance
activism
Dennis Leech

INTRODUCTION

Much recent discussion of policies to improve standards of corporate
governance has increasingly focused on the role of shareholders: as the
legal owners of a company they can be said to have the ultimate respon-
sibility for all aspects of its conduct and performance and therefore are the
group to whom management is accountable. This contrasts with the more
traditional view in which investors are not supposed to become involved in
the direction of their portfolio companies ­ simply buying or selling their
shares according to whether they do well or badly ­ and relying on the
market for corporate control to ensure high standards or performance
through takeovers or threat of takeovers. As a form of market regulation
this has been shown by many studies to be inadequate and there are strong
arguments for the new approach based on corporate governance activism.1
At the same time, and on the other hand, there is considerable evidence that
investors have yet fully to embrace their new responsibilities and discharge
their associated duties,2
Shareholder activism3 or engagement derives from investors developing
long-term face-to-face relationships with the companies in which they
invest. Rather than their involvement being little more than that of anony-
mous speculators, trading their shares on the market, they become the
owners with an interest in the company's progress, a knowledge of its busi-
ness and personnel and a commitment to its long-term success; at the ...


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