Legal Obstacles to Institutional Investor Activism in the EU and in the US

Starting from the observation that at the multilateral level shareholder activism is considered as an important aspect of good corporate governance, this paper examines several legal and economic obstacles to institutional investor activism in the EU and in the US.

We find that investors in the US seem to have easier access to proxy voting than in the EU (although recent EU legislation should remove several of the present legal obstacles) even though the SEC allows only long-term relevant shareholders to include nominees on the corporate proxy; that conflicts of interest might limit the activism of several categories of institutional investors both in the US and in the EU; that some national legislations in the EU limit the ability of institutional investors to coordinate their voting policies; that recent EU legislation has introduced discriminatory requirements for some institutional investors when they acquire control of listed and non-listed companies; that recourse to stock lending and other forms of separation of financial risk from voting rights seems to be practiced more by controlling shareholders at the expense of institutional investors than the opposite, something which should be clearer in the near future with an upcoming EU legislation which should extend the transparency requirements for all shareholders to borrowed securities, cash-settled derivatives and other instruments that allow to exercise voting influence in a company; and that proposed EU legislation provides transparency requirements and permanent limitations to naked short selling largely in excess of the US regulatory framework.

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