Chapter 3 surveys enterprise reforms in China since the late 1970s to highlight evolving constraints and space for leadership in SOEs. It examines five periods: emergence and decline of “dual track” economic reform (1978–91), establishment of a socialist market economy (1992–94), retrenchment of state ownership in the “commanding heights” (1995–2001), internationalization and consolidation of the state sector (2002–12), and combination of limited economic liberalization with increased political control (2013 to present). Since the late 1970s, SOE leaders have transitioned from managing production to determining how to restructure their firms, managing state-owned capital, and expanding in both domestic and international markets. Although the overall trend has been toward expanded space for leadership, the current Xi Jinping administration has tightened political and commercial control.

Shareholder engagement is pivotal in corporate governance, evolving beyond formal resolutions to impact business decisions. This chapter unveils the typically undisclosed dynamics of board-shareholder engagement through a survey of 171 SEC-registered corporations, targeting corporate secretaries, general counsel, and investor relations officers. The survey was complemented by a review of the disclosure on shareholder voting and engagement included in proxy statements filed by Russell 3000 companies during the 2018–2022 meeting seasons. Larger and mid-sized companies more frequently engage than smaller organizations. Engagement, often with major asset managers, can take a confrontational turn, particularly with hedge funds at smaller firms. Topics include executive incentive plans, ESG metrics, GHG emission reduction, workforce diversity, pay equity, and political spending. The study reveals that engagement significantly influences corporate practices, leading to changes, withdrawal of proposals, alterations in proxy votes, and the inclusion of engaged shareholder-nominated directors in management slates.

Blockchain and distributed ledger technologies are considered as transformative for corporate governance and enabling decentralized autonomous organizations (DAOs) that challenge hierarchical structures. However, legal, governance, and liability issues surround DAOs. Despite the aim for decentralization, practical implementation often reveals centralized elements. The chapter also explores blockchain’s impact on traditional corporations, emphasizing improvements in share issuance, trading, and decision-making. Blockchain can also address custody chain problems, enhancing transparency in securities and stock ownership. Yet, transitioning to blockchain, exemplified by ASX CHESS Replacement, is complex. While blockchain holds promise in fostering shareholder and stakeholder rights, a nuanced assessment of limitations and practicalities is crucial. More classical alternatives like secure and transparent centralized systems should also be considered in corporate governance.

Capital market, regulatory and technological developments have created investor appetite and capacity for engagement with public companies. Our paper explores key engagement mechanisms and techniques employed by public company shareholders. First, shareholder-company engagement is a multi-dimensional, evolving phenomenon. Shareholders use a range of techniques including shareholder meetings, behind-the-scenes interactions, public campaigns, and online technologies. Second, shareholders mix and match different engagement techniques to leverage governance influence. Third, shareholders increasingly undertake their engagement activities collectively, highlighting growing capacity to overcome traditional collective action challenges. Finally, the shareholder meeting remains an important engagement mechanism. Its formal, in-person and public nature sets it apart from other mechanisms and gives it unique potential as a forum for scrutiny and accountability. Although low attendance rates indicate that shareholders do not routinely utilise the meeting to maximum effect, it is better conceived as having contingent significance because its potential as an accountability mechanism can prove critical when a company experiences serious governance problems.

Corporate governance debates have undergone a fundamental shift, with environmental,social and governance (“ESG”) issues coming to the forefront of decision-making by boards, executives and shareholders. Across a spectrum ofstakeholders, companies and their boards face pressure to incorporate ESG considerations into their business strategies, including strategies around merger and acquisition (“M&A”) transactions. This chapter addresses how the growth of ESG is poised to affect board and shareholder engagement in M&A. For boards evaluating M&A deals, ESG factors are emerging as critical to all aspects of dealmaking, including selection of targets and buyers, due diligence, governance and integration, and financing. The ESG pressures on M&A deals also influence corporate governance in M&A – implicating board strategy and oversight in M&A, as well as shareholder engagement in M&A. In an ideal world, ESG information can help enhance board and shareholder decision-making around M&A. Yet, whether ESG considerations are likely to do so remains uncertain.

A robust literature describes the incentives and stewardship practices of the “Big Three” asset managers (BlackRock, Vanguard, and State Street Global Advisors), often referring to these asset managers as “passive.” This is so common that the “Big Three,” “index fund,” and “passive manager” are used almost interchangeably by both academics and practitioners. This shorthand emerged in the foundational scholarship in this area, and while it may remain useful in certain contexts, its casual use obscures important features of the market and contributes to misperceptions. In this chapter, we demonstrate that it is a mistake to equate passive investing with index funds; index funds with the Big Three; and the Big Three with giant asset managers. We further sketch some of the consequences of these distinctions and set forth questions for further research.

This chapter examines the impact of insider regulation on the board-shareholder dialogue. It offers a comparative analysis, revealing that EU and UK laws are more restrictive than those in the US. Drawing from this analysis, the paper raises the question of whether the EU should introduce a safe harbour rule to facilitate shareholder engagement through private disclosure of inside information. While shareholder engagement is considered beneficial for corporate governance and long-term firm value, the paper questions the necessity of selectively disclosing inside information to investors. It argues that mandating greater transparency in the board-shareholder dialogue is preferable, ensuring all shareholders have equal access to information. The feasibility and practicality of a safe harbour rule are doubted due to associated costs and challenges. In conclusion, the chapter rejects proposals to enact such rules, citing limited benefits and substantial costs.

In the United States, institutional investors, such as BlackRock, Vanguard, and State Street, have been instrumental in advancing ESG and related stakeholder concerns. Through open letters and active engagement, these investors have outlined their expectations regarding ESG practices, while providing guidance on disclosure practices that ensure corporations appropriately address ESG. Institutional investors also have utilized the shareholder proposal process to encourage corporations to address critical ESG concerns. Nonetheless, critics argue that linking ESG and stakeholder interests to investors’ profit motives may hinder progress, limiting any focus on ESG solely to issues that can be linked to measurable economic benefits. This chapter offers a more optimistic perspective. It argues that shareholders have been strong advocates for stakeholders, moving the needle around several critical ESG issues including disclosure, board oversight, and increased corporate commitment to specific ESG goals. This chapter further argues that shareholders may be best positioned to ensure that corporations maintain a long-term focus on ESG and other stakeholders. Thus, rather than hindering progress, this chapter posits that the connection between ESG and financial returns may enhance corporate focus on ESG.

This introductory chapter provides the reader with data on institutional investors’ role in the governance of listed companies in the US and Europe. Drawing from various databases, we sketch out the phenomenon of share ownership reconcentration in the hands of institutional investors across jurisdictions, tracking the nationality and ownership of the largest asset managers and draw some implications therefrom. In particular, we look into whether divergence in ownership patterns (the presence vs absence of a controlling shareholder) and the identity and characteristics of asset managers may lead to divergence in the incentives structure for, and the focus of, shareholder engagement on the two sides of the Atlantic. Finally, we provide the reader with a roadmap of the book contents.

The multidimensional and evolving nature of contemporary shareholder-company engagement practices means that the processes which shape corporate decisions are becoming more diffuse and potentially less transparent. Ensuring accountability is more complex in these circumstances and requires a focus on various channels of influence-wielding.

As touched upon in Chapter 1, contemporary commentary on corporate governance can be divided into two main approaches: stakeholder primacy, and the narrower shareholder primacy. This chapter focuses on the first of these objectives. We commence the chapter by pointing out that an approach that accentuates the differences between a shareholder versus a stakeholder theory of the corporation is probably a contradiction and a false dichotomy. We then deal with the important aspect of corporate social responsibility (‘CSR’) and the related issue of disclosure of and reporting on non-financial matters. As part of this discussion we focus on the controversial and highly topical issue of companies exaggerating their image as environmentally friendly corporations (greenwashing) to please investors and to attract more investments, as well as smartening their image on other issues (greenscreening). This chapter then looks at the ‘social licence to operate’ before shifting to CSR and directors’ duties. The chapter concludes by considering the meaning of ‘stakeholders’ and how all corporate stakeholders have vested interests in the sustainability of corporations.

This chapter opens with a brief discussion of the nature of business ethics, its significance for corporations and the ethical dimensions of a corporation’s stakeholder relationships. The next section is focused on the causes of ethical problems: bad apples, bad cases and bad barrels. In order to examine these it presents the theory related to each before drawing on three case studies: the HIH failure, the LIBOR case and the destruction of Juukan Gorge. The extent to which we attempt to encourage ethical conduct is discussed in the following section. In particular, that section examines corporate accountability, individual accountability and organisation-level approaches that seek to shape the ethical conduct of corporations. The final section is devoted to some concluding remarks.

Since at least 2018 there has been a major shift within ‘Business America’ away from ‘shareholder capitalism’ towards ‘stakeholder capitalism’, a move which has already had some global impact. Our approach is, however, realistic and we also make the reader aware of the challenges for countries, particularly where shareholder primacy is deeply embedded in statutory law and case law, to move from shareholder primacy to an all-inclusive stakeholder model of corporate law and corporate governance. In this chapter we extract some of the ‘essential’ principles of corporate governance and illustrate that there is a ‘business case’ for good corporate governance. We conclude the chapter by discussing broader trends and debates with a present and likely future impact on corporate governance. These include what can be described as the ‘Fourth Industrial Revolution’; the widening gap between the ‘rich’ and the ‘poor’, or, put differently, ‘the price of inequality’; the growing problem regarding profit-sharing or capital distribution in large public corporations; and a short discussion of the so-called ‘Great Reset’.

Historically, the power to manage the business of all companies and corporations was conferred upon the board of directors. The fact that it was impossible for a board of directors to manage the day-to-day business of large public corporations was only openly acknowledged in the past three decades. This chapter focuses on the organs of a company and then discusses the main functions of a board of directors. It is clear that there is an important distinction between managing the business of the company and directing, supervising and overseeing the management of the business of corporations in large public companies. The board is responsible for directing, supervising and overseeing the management of the business of corporations. Managing the business of large public corporations is normally left to management, but under control of the board.