Continued research into the role of institutional investors supports the importance of corporate governance for those investors and reinforces the message that the proxy-voting process is itself an important channel for corporate governance.
Dr Pedro Saffi, University Lecturer in Finance at Cambridge Judge Business School, took the prestigious American Finance Association’s annual meeting through the findings of ongoing studies into the role of institutional investors in influencing firm-level corporate governance through proxy voting.
Working with colleagues from Georgetown University, Dr Saffi says their revised approach using new methodology has allowed them to sketch a more accurate picture around the role of institutional investors and the proxy-voting process.
In an interview for the Cambridge Judge Business School website, Dr Saffi repeated his call for increased transparency allowing the investors to know exactly what their votes will be used for.
He says that in the wake of the financial crisis many regulatory changes have been introduced in America that are designed to improve financial markets including the way proxy-voting takes place.
“By making the whole process more transparent and giving information to investors they can make better decisions that should keep managers on top.
“In the UK, shareholder decisions on pay are actually binding in terms of what management can do. In the past couple of years we have seen an increase in shareholder activism in the sense that when companies were not doing so well and their profits were going down, shareholders turned down big bonuses and payments to managers. At the end of the day it’s good for society and shareholders in general because they should only be paid for good performance.”