The Handbook of Board Governance, 2nd Edition

45The Rise of Investor Stewardship

Stephen Davis PhD

Associate Director of the Harvard Law School Programs on Corporate Governance and Institutional Investors, and Senior Fellow at the Program on Corporate Governance

Introduction

Stewardship as a subject is fast rising to the top of market agendas, with far-reaching implications for corporate directors. Europe's Shareholder Rights Directive, to take just one example, came into force in June 2019 with a principal goal of stimulating active stewardship practices among investors. But the term is relatively new to the corporate governance world. For a crude measurement of just how new, a search conducted on Google for “stewardship and corporate governance” between 1 January and 30 June each year at intervals of five years since 1998 yielded striking results.¹ In 1998 the search produced just 359 references. In 2013 the figure spiked to 19,100. But in 2018 it rocketed to 62,300. In a growing number of instances it even began replacing the widely used term “ESG” (“environmental, social, and governance”) to express how an investor addresses extra-financial factors.²

What does “stewardship” mean? The Oxford English Dictionary defines it in general terms as “the job of supervising or taking care of something, such as an organization or property.” In a corporate governance context, it is now often deployed to describe the process by which an investor uses a variety of available tools to help prompt a portfolio company to improve its ...