Institutional Investors and Corporate Governance in Australia

Abstract

The emergence of institutional investors as shareholders has challenged, and rendered outmoded, many of the traditional assumptions about shareholders and their engagement with the corporation. There has been considerable interest in, and reassessment of, the position of institutional investors and their capacity to monitor corporate management, within the broader debate on managerial accountability and corporate regulation. Corporate theory is, however, still grappling with the implications of these changes for a revised model of corporate governance. It is unclear whether the difference between institutional investors and other shareholders is qualitative or quantitative only, and the extent to institutional investors' distinctive characteristics will affect the nature of their participation in corporate governance.

The purpose of this paper is to examine changes in the role of institutional investors in corporate governance in Australia. By way of background to this issue, the paper briefly outlines the underlying flow of funds and patterns of investment in Australia and discusses important developments concerning collective investment, particularly superannuation. On the question of greater involvement by institutional investors in corporate governance, the paper examines some specific instances of investor activism and discusses the extent to which legal principles present an obstacle to increased institutional investor activity and power in Australia.

Keywords: corporate governance, comparative corporate governance, institutional investors, shareholders, activism, superannuation, pension funds, collective investment

JEL Classification: D70, G30, G32, G38, K22, K33, M14