The Voting Framework: A Comparative Study of Voting Behaviour of Institutional Investors in the U.S. and the U.K

Institutional investors are estimated to own between 65%‐75% of shares of quoted companies in the U.K., and 47%‐50% of U.S. equities, although for many large corporations in the U.S., institutional ownership far exceeds 50%. Institutional investors have the potential to exert significant influence on companies via their voting rights, and this has clear implications for corporate governance, especially in terms of the standards of corporate governance and issues concerned with enforcement. In the U.K. institutional shareholders are encouraged to exercise their voting rights. In the U.S. the Department of Labor has stated clearly that it considers that the exercise of the vote is a fiduciary duty of shareholders, and it has expressed the view that U.S. institutional shareholders should vote their stock both in the U.S. and overseas. In this paper the frameworks that influence institutional investors to exercise their proxies are examined for both the U.S. and the U.K. The characteristics of each are discussed and models developed for the U.S. and U.K. The implications for voting, and for corporate governance generally, are discussed. The internationalisation of institutional portfolios results in a cross‐border interest in corporate governance which makes this a particularly interesting area to analyse.