The notion of stewardship from a company law perspective: Re‐defined and re‐assessed in light of the recent financial crisis?

The Stewardship Code, the first of its kind for the Financial Reporting Council, seeks to encourage better dialogue between shareholders and company boards. Given the UK market's role as a governance paragon, the code principles will be critical to practices of good stewardship taking root globally. But this new Code raises concerns, for example, as to how to treat non‐UK investors who collectively now hold upwards of 40 percent of the country's equity market. Would they voluntarily adhere to the code, and, if not, how relevant or effective would the code be? The purpose of this paper is to shed light on these topical questions.

The paper focuses on stewardship as an important criterion for assessing the performance of larger shareholders (i.e. institutional shareholders). Section 2 explains the concept of “stewardship”. It also outlines its growing importance. Section 3 introduces the Stewardship Code, tracks back its genesis, focusing, in particular, on the underlying themes and the major principles and guidance in the Code. Section 5 then critically assess the Code, looking in particular at major possible obstacles. Finally, implications from the preceding discussion are drawn in Section 6.

Section 4 reveals a hidden truth (the “stewardship spectrum”), i.e. in practice, companies operate in an ever‐changing business world, a more rapidly changing business practice with more pressures and complexity and with more diverse “players” and conflicting interests at play. It is submitted that this hidden truth effectively poses a challenge to the success of the Code.

This paper is geared towards providing the reader with critical tools to assess the likely impact of the Code.