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Institutional Investor Stewardship in the UK and Malaysia: Functionally Similar, Contextually Challenged

Published online by Cambridge University Press:  11 November 2019

Petrina Tjin Yi TAN
Petrina Tjin Yi TAN*
Affiliation:
Faculty of Law, National University of Singaporepetrina.tan@u.nus.edu
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Abstract

Institutional investors are acknowledged as an influential force in markets worldwide. As a result of increased focus on the impact from the investing and shareholding practices of institutional investors, stewardship codes were first introduced in the UK, followed by Malaysia. This article evaluates the theory and practice of institutional investor stewardship in Malaysia through functional and contextual lenses, as juxtaposed against the more established position of stewardship in the UK. Notwithstanding an analogous legal framework for shareholder rights and the textual similarities of the UK Stewardship Code and Malaysian Code for Institutional Investors, the dominance of government-linked investment companies and government-linked companies in Malaysia results in a distinct set of issues in relation to institutional investor stewardship. This article then argues that the stewardship codes are in themselves insufficient in increasing the quality and scope of institutional investor engagement as they fail to address the underlying agency conflicts between the institutional investors and ultimate beneficiaries or clients. In learning from the UK's experience, it is important that Malaysian policymakers pay attention to the overarching structural factors and incentives driving institutional investor engagement alongside the development and take-up of the stewardship code.

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Article
Information
Asian Journal of Comparative Law , Volume 14 , Issue 2 , December 2019 , pp. 279 - 304
Copyright
Copyright © National University of Singapore, 2019

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Footnotes

*

PhD Candidate, Faculty of Law, National University of Singapore. Advocate and Solicitor (Malaya) (Non-Practising). I wish to thank Dan Puchniak, Hans Tjio, Hu Ying, John Paterson, Lin Lin, Rachel Leow, Sandra Booysen, and Umakanth Varottil for their helpful comments, particularly during my working paper presentation on 27 April 2018 at the Centre of Banking & Finance Law, National University of Singapore. A further note of thanks is extended to the two anonymous reviewers of this article for their insightful comments which have helped improve this article. I would also like to express my appreciation and gratitude to the Centre of Banking & Finance Law, National University of Singapore for their support during my tenure as an Adjunct Research Fellow of the Centre where I first wrote this paper. The law and data cited in this article are as of August 2019. All errors and omissions are my own.

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63. ibid 7.

64. ibid 17.

65. ibid.

66. See Part IV below.

67. The Minority Shareholder Watchdog Group (MSWG) is an independent research organization on corporate governance matters. It provides a platform and a collective voice to both retail and institutional minority shareholders, and it advises on voting at general meetings of public listed companies. See ‘Who We Are’ (MSWG) <http://www.mswg.org.my/who-we-are> accessed 16 Sep 2019.

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76. SC & MSWG (n 7).

77. The Editor (n 2).

78. MCII (n 2).

79. ibid 2; UKSC (n 6) 1.

80. ibid 2.

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82. See UKSC (n 6) 2 on the ‘Application of the Code’, which provides that an asset manager should disclose how it delivers stewardship responsibilities on behalf of its clients and encourages asset managers to have the policies in their stewardship statements independently verified.

83. MCII (n 2) 12; UKSC (n 6) 6.

84. Institute of Directors Southern Africa, ‘Code for Responsible Investing in South Africa 2011’ (Institute of Directors Southern Africa 2011) 11 <https://cdn.ymaws.com/www.iodsa.co.za/resource/resmgr/crisa/crisa_19_july_2011.pdf> accessed 16 Sep 2019.

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92. MCII (n 2) 4.

93. UKSC (n 6) 4.

94. MCII (n 2) 5.

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96. Act 335.

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107. Financial Reporting Council (n 102).

108. ‘List of Signatories’ (IICM) <http://www.iicm.org.my/list-of-signatories/> accessed 16 Sep 2019. As of September 2019, there are now twenty-two signatories to the MCII.

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115. Affin Hwang Asset Management Berhad is an asset manager which is part of Affin Hwang Capital, a licensed investment bank held by Lembaga Tabung Angkatan Tentera, Boustead Holdings, and the Bank of East Asia Limited. See ‘About Us’ (Affin Hwang Capital) <https://affinhwang.com/about/ourfirm/> accessed 16 Sep 2019.

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126. The Minister of Finance Incorporated is a company incorporated pursuant to the Minister of Finance (Incorporation) Act 1957 (Act 375, Revised 1989) and is under the jurisdiction of the Malaysian Ministry of Finance.

127. Permodalan Nasional Berhad is an investment and unit trust fund management company set up by the government to increase Bumiputera corporate ownership. Bumiputera, which literally means ‘sons of the soil’, refers to Malaysian citizens who are Malays or other indigenous tribes and are given special privileges as set out in the Federal Constitution of Malaysia. See ‘Corporate Information’ (Permodalan Nasional Berhad) <http://www.pnb.com.my/about_e.php> accessed 16 Sep 2019.

128. Lembaga Tabung Haji is a special purpose fund set up to help Muslims save for the Haj pilgrimage. See ‘About Us’ (Lembaga Tabung Haji) <https://www.tabunghaji.gov.my/en/corporate/corporate-information/about-us> accessed 16 Sep 2019.

129. Lembaga Tabung Angkatan Tentera is a pension fund specifically for members of the Malaysian armed forces. See ‘Background’ (Lembaga Tabung Angkatan Tentera) <http://www.ltat.org.my/en/ltat/background.html> accessed 16 Sep 2019.

130. Brian Groom & Sylvia Pfeifer, ‘Privatisation defined Thatcher era’ Financial Times (8 Dec 2011).

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133. Putrajaya Committee on GLC High Performance (PCG), ‘GLC Transformation Manual’ (PCG 29 Jul 2005), 19–20, 29–31, 45 <https://www.pcg.gov.my/media/1036/policy-guideline.pdf> accessed 16 Sep 2019.

134. Gomez et al (n 124), 20–28.

135. Hairul Azlan Annuar (n 29) 460.

136. ibid.

137. Hirschman (n 35).

138. See Gen Goto, ‘The Logic and Limits of Stewardship Codes: The Case of Japan’ (2019) 15 Berkeley Business Law Journal 365.

139. Gomez et al (n 124) 231

140. Shamim Adam, Laurence Arnold & Yudith Ho, ‘How Malaysia's 1MDB Scandal Shook the Financial World’ Bloomberg (10 Jan 2019) <https://www.bloomberg.com/news/articles/2019-01-09/how-malaysia-s-1mdb-scandal-shook-the-financial-world-quicktake> accessed 16 Sep 2019.

141. Shannon Teoh, ‘Malaysia's pilgrims’ fund scandal strikes at core of Malay worries’ Straits Times (16 Dec 2018) <https://www.straitstimes.com/asia/se-asia/malaysias-pilgrims-fund-scandal-strikes-at-core-of-malay-worries> accessed 16 Sep 2019.

142. Gomez et al (n 124) Appendix 2.1.

143. ibid.

144. Alan J Dignam, ‘The Future of Shareholder Democracy in the Shadow of the Financial Crisis’ (2013) 36 Seattle University Law Review 639, 640. See also Christopher M Bruner, ‘Corporate Governance Reform in a Time of Crisis’ (2011) 36 Journal of Corporate Law 309.

145. See generally Cheffins, Brian R, ‘The Stewardship Code's Achilles’ Heel’ (2010) 73 Modern Law Review 1004CrossRefGoogle Scholar.

146. MacNeil (n 9) 438.

147. ibid 436.

148. Bebchuk, Cohen & Hirst (n 1) 89.

149. ibid 96.

150. ibid.

151. ibid 101.

152. ibid.

153. ibid.

154. ibid 108.

155. Gomez et al (n 124) 8.

156. ibid 219.

157. Although there has been much discussion on the reform of GLCs and other systemic weaknesses in Malaysia since the watershed fourteenth General Election on 9 May 2018, which saw the incumbent Barisan Nasional coalition lose to the opposition after an unbeaten reign of sixty years as well as the 1MDB scandal, this is expected to be a slow process. See Vivien Chen, ‘How Malaysian Corporate Laws Can Recover After Corruption (Corporate Regulation)’ (Monash Business School Impact, 21 Nov 2018) <https://www2.monash.edu/impact/articles/how-malaysian-corporate-laws-can-recover-after-corruption/> accessed 16 Sep 2019; Chen, Vivien, ‘Enforcement of directors’ duties in Malaysia and Australia: the implications of context’ (2019) 19 Oxford University Commonwealth Law Journal 91CrossRefGoogle Scholar.