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Chapter 5

1.2 Institutional shareholder intervention

Conditions under which it would be appropriate for institutional investors
to intervene:

 Strategy: in terms of products sold, markets serviced, expansion
pursued or any other aspect of strategic positioning.

 Operational performance: in terms of divisions within the corporate
structure that have persistently under-performed.

 Acquisitions and disposals: this might be in terms of executive
decisions that have been inadequately challenged by NEDs.

 Remuneration policy: this might relate to a failure of the
remuneration committee to curtail extreme or self-serving
executive rewards.

 Internal controls: failure in health and safety, quality control,
budgetary control or IT projects

 Succession planning: a failure to adequately balance board
composition or recommendation of replacement executives
without adequate consideration of the quality of the candidate.

 Social responsibility: a failure to adequately protect or respond to
instances of environmental contamination or other areas of public
concern.

NB Failure to comply with relevant codes: consistent and unexplained non-
compliance in a principles-based country will be penalised by the market. In a rules-
based country it would have been penalised as a matter of law

Illustrations and further practice

Now review illustration 1

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