Institutional investors and investment managers' involvement in corporate government in the UK : are they able and willing to hold corporate managers to account?

It was stated by the Cadbury Committee (1992) that: 'the basic system of governance in Britain is sound. The principles are well known and widely followed.' This thesis argues that such a statement is in fact exaggerated as far as public listed companies are concerned. Despite the fact that changes have occurred in the share ownership structure of U.K. public listed companies, leading to the concentration of share ownership in the hands of institutional investors and investment managers, the economic and legal framework of the market still fails to support them, as the market's main financial players, in holding corporate managers to account, and hence achieving a sound corporate governance system. The objective of this thesis was to examine the economic and legal frameworks of the present corporate governance system and its influence on institutional investors and investment managers with regards to their role in holding corporate managers to account. In doing so, the thesis went through three phases. In the first phase, the thesis introduces the U.K. corporate governance model, concluding that it relies almost solely on shareholders in holding corporate managers to account. The fact that institutional investors and investment managers hold the majority of shares in U.K. public listed companies makes them the obvious candidates to play such a role. Yet, the economic framework of the market does not particularly motivate institutional investors and investment managers to do so. Whilst some institutional investors and investment managers may still be undeterred by this, the question posed was does then, the market's legal framework, offer such institutional investors and investment managers the support to hold corporate managers to account In light of this question, the second phase of this thesis examined whether contract negotiation, litigation and the use of proxies and voting are viable means available to shareholders in holding corporate managers to account. Contract negotiation and litigation were found to fall short of doing so, whilst the voting and proxy system, although not widely used by institutional shareholders and investment managers, might in the future, hold part of the answer. If institutional investors and investment managers are still undeterred by the economic and legal obstacles, they may resort to dialogue among themselves and with investment managers, as a means to holding corporate managers accountable. Yet, as exemplified in the third phase of this thesis, shareholders are over regulated when it comes to both dialogue amongst themselves as well as with corporate managers, leaving it to the extreme will and determination of shareholders to take initiatives in attempting to hold corporate manager to account something that many institutional investors and investment managers may in fact, lack.