Enforceability of institutional investors responsibilities in corporate governance through the Dutch Corporate Governance Code : Are regulators and practitioners on the same page (and to who are institutional investors accountable)?

Corporate governance codes have been drafted to guide listed companies to improve corporate governance. Shareholders, in particular institutional investors, are being asked to play a critical role in safeguarding good corporate governance. However, addressing shareholders of Dutch listed companies through the Dutch Corporate Governance Code and describing their responsibilities as active owners has not so far resulted in a broad range of engagement of institutional investors with investee companies. This is possibly because there is a misalignment of key assumptions underlying the Dutch Code with actual capital market practices. Driven by those practices, institutional investors are first and foremost concerned with maximizing the returns on their investments. Enforcing institutional investors to take responsibility in improving corporate governance cannot be done through laws and codes alone. Passing laws and codes is one thing and enforcing them – and even inspiring buy in on the part of those they are aimed at – is something entirely different. Ultimately, enforceability is about the value that ultimate beneficiaries of institutional investors place on ‘stewardship’, and hold their (fiduciary) asset manager accountable for. This paper is a call to reconsider the ultimate function of corporate governance codes in a context of international capital market practice in which codes can never be a goal in itself, but more a means for improving corporate governance around the world. Working paper voor Globalization and the Law 2011, 3rd annual conference, The Function of the Law before Crises: A comparative corporate governance exploration, 7-10 December 2011, Stellenbosch University, Faculty of La