Increased engagement by investors with the companies in which they invest has been a major change in Western economies since the 1980s. Shareholder value provides rationale and incentive for investor engagement. The book summarizes the basic principles of shareholder value, and explains the reasons for its growth, especially in the UK and the USA. The authors outline a spectrum of investor engagement ranging from indirect/laissez-faire influence via (threat of) exit to direct intervention in specific areas of management practice. The book focuses on two types of investor, institutional investo ... More

Increased engagement by investors with the companies in which they invest has been a major change in Western economies since the 1980s. Shareholder value provides rationale and incentive for investor engagement. The book summarizes the basic principles of shareholder value, and explains the reasons for its growth, especially in the UK and the USA. The authors outline a spectrum of investor engagement ranging from indirect/laissez-faire influence via (threat of) exit to direct intervention in specific areas of management practice. The book focuses on two types of investor, institutional investors and private equity/venture capital investors. Different types of institutional investors have different incentives for engagement, and adopt different methods. ‘Universal investors’ with long time horizons, such as pension funds, have especially strong incentives for engagement, as illustrated by USS Limited. The book distinguishes between institutional investors' routine and extraordinary engagement, and shows how collaboration amongst investors through organizations such as the Institutional Shareholders' Committee offsets the high costs of monitoring and provides means for ensuring compliance with ‘best City practice’. The engagement of private equity funds is illustrated through case studies of equity funds and the portfolio firms in which they invested. But corporate managers are not simply passive reactors to investors' interventions: managers seek to influence investors, for example through managing market expectations. Shareholder value conceptions are not universal: they are strong in the UK and the USA, but are weaker in coordinated market economies such as Germany. The book concludes by evaluating the normative case for shareholder value and investor engagement, arguing that conventional analyses overestimate the efficiency arguments for shareholder value and the equity arguments against shareholder value. The future development of corporate governance is seen to require greater openness and the inclusion of a wider range of interests, not the further enhancement of the protection accorded to shareholder interests.