Institutional Investors and Asset Managers’ Long-Term Engagement Under the SRD II: A Comparative Study Between Italy and the UK

When capital markets are affected by the illness of excessive short termism, shareholders (specifically, institutional ones) being inactive and seeking profit only, the consequences can be serious. Not only investee companies are forced to sacrifice their future horizons to appear more attractive, but also the overall investor society faces losses in terms of unachieved long-term values. Stewardship, fostering shareholder engagement, tries to re-equilibrate the relation between short and long termism in capital markets, through a series of initiatives that can be either based on soft law or hard law. In the EU context, after the promulgation of the Shareholder Rights Directive II, Member States started developing new rules for institutional investors and asset managers’ long-term engagement. The cases of Italy and the UK appear curious in this sense, since they are based on different mixtures of hard law and soft law rules. The comparison between the two possibly evidences how the choice for different legislative techniques can truly influence the results. The literal adoption of the Directive in Italy, although accompanied by promising soft law initiatives, represents a likely defeat of hard law, which appears not able to assimilate and ‘tame’ the core aspects of the discipline. Non-financial elements appear not fully valorized, and the material application of the rules too scholastic and uselessly complicated, as testified by the lack of clarity regarding exit (and entry) strategies, the ‘comply or explain principle, and the enforcement system. On the contrary, the approach followed by the UK policymaker, based on soft law mainly, shows a deeper understanding of stewardship and its role. It aims not to impose rigid obligations, but rather to leave market actors free to gradually and metabolize and adapt to the new engagement rules. Financial and non-financial elements appear equally contextualized, and all the applicative aspects mentioned above eventually find proper specification. Enforcement, then, is limited to a social sanctioning level, which again allows the market to – in a certain way – self regulate over time.