Institutional Voting in the UK: Is Mandatory Voting the Answer?

Institutional shareholders are increasingly being urged to take a more active role in the governance of the companies in which they invest. In particular, attention has focused on the level of voting by institutions at annual general meetings, which has historically been rather low, and many commentators argue that institutions (particularly the pension funds) should have a legal duty to exercise their voting rights on behalf of their beneficiaries. This paper examines the issues regarding institutional voting and considers whether mandatory institutional voting is likely to lead to more active institutional involvement in corporate governnance at the individual firm level. In particular, it is argued that the imposition of mandatory voting is unlikely to result in informed voting, which is essential if the objective of increasing effective institutional involvement in corporate governance is to be met. This paper concludes that the imposition of mandatory voting is unlikely to result in a change in the investment and ownership ethos of the institutions.