The word 'steward' generally implies a person who is responsible to look after the concerns or take care of its assigned or targeted set of patrons. Coming to the topic under discussion, the term 'Stewardship Code' has been applied as one of the tools of corporate governance world over. It has been associated with the act or the duty of the institutional investors such as Alternative Investment Funds (AIFs), Mutual Funds, pension funds, insurance companies, banks etc. vis-à-vis their investors/policy holders whose money they invest in the listed companies. As such, there is a fiduciary responsibility of such institutional investors towards their investors as regards their investments in such listed companies. It underscores the duty of the institutional investors to raise any concern or make such interventions in the affairs of the listed companies so as to protect and uphold the interest of such investors of the institutional investors. One may call it as one of the renewed modes of shareholder activism.


Globally, the concept of Stewardship Codes is a very established one. In India, the concept was indirectly prevalent for some time but has gained its formal foothold only in the year 2017. Basically, the Stewardship Code can be understood as means of interaction between the shareholders and a listed company – listed company because of the quantum of public interest and their involvement in the same. The Stewardship Codes have been enacted by the regulators world over as a means of enhancing corporate governance from the purview of listed entities so as to enhance their responsibilities and accountability towards its shareholders. The crux is to enhance the investor-company relationship and lead to better engagement between them. It will be a win-win situation, both for the company and its shareholders, where the shareholders stay loyal to the company and the company in turn reciprocates b factoring the concerns and views of its shareholders as regards its functioning and management. The idea is to communicate the concerns and apprehensions of the shareholders to the company management and the company in turn addressing those concerns - ideally with concrete steps.

The Stewardship Code is essentially for the institutional investors as they in turn represent the interest of innumerable investors in any given listed company. Institutional investors include AIFs, Mutual Funds, Insurance Companies, Banks, pension funds.

The UK, in the year 2010, became the first country to adopt the Stewardship Code more so as a response to the after effects of 2008 financial crisis which significantly raised the fingers on efficacy of prevalent corporate governance standards in the UK banks and financial institutions. Subsequently, quite a few countries including United States of America, Malaysia, Brazil, Japan, South Africa, Taiwan, Kenya, Hong Kong have adopted their respective Stewardship frameworks. The European Union adopted a Shareholders Rights Directive that includes elements found in existing stewardship codes.


Basically, Stewardship Codes are meant to promote the shareholder democracy by holding the company more accountable with its policy decisions wherein the companies are required to carry out timely disclosures as well as provide justification for their business actions to the share 'owners'. The issues that essentially are targeted by such Stewardship Codes are conflict of interest, voting, monitoring, environment and social responsibility and general conduct of the concerned company. In this direction, and as one of the means, the listed entities in most of the jurisdictions have to update their company websites with investor policies, annual and quarterly results, materiality events, stakeholder engagement etc. These are all ways and means to provide the shareholder with adequate tools to analyse the performance of the concerned company and at the same time flag out any issue which pertains to the share 'owners'. The listed companies are expected to do course corrections especially as regards the 'concerns' raised by 'big and sophisticated investors' viz. institutional investors. This is more to do with the news and media coverage that an institutional investor can manage to garner and the probable pitfalls where the concerned company doesn't address such concerns of the 'big investors'. This also keeps the company always on its feet.

It might perhaps be a bit early to gauge the impact of these Stewardship Codes in the different countries and whether the same has well and truly lead to resurgence in the way of shareholder protection or whether the Codes have been just mechanically implemented. It is worthwhile to note that the first country to adopt the Stewardship Code, i.e. the UK, has revamped its code and the UK's Financial Reporting Council has come out with UK Stewardship Code 2020. This represents the first significant revision of the Stewardship Code since its original publication in 2010 and being implemented from January 01, 2020. It is bound that other countries too may modify their respective codes in line with the experiences encountered by such respective countries after coming out with the first version of their codes.

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Originally published 8 May, 2020

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