Perspectives on the Integration of Corporate Governance in Equity Investments: From the Periphery to the Core, from Passive to Active

Two main activities demonstrate the integration of corporate governance in equity investments. On the one hand, the increasing incorporation of governance factors alongside financial ones at the onset of an investment process and subsequent stock selection in actively managed portfolios as investors seek valuable sources of risk-related information or excess returns: From the Periphery to the Core. Whilst on the other hand, the increasing number of investor engagements with portfolio companies on a wide range corporate governance matters, partially explained by the rise of index tracking investments, as investors seek to fulfill their stewardship responsibilities with the purpose of realizing change through dialogue, confrontation, voting, or a combination of these: From Passive to Active. However, and as alluded to above, different approaches with very different purposes remain among the investor community to both governance integration (risk identification vs. alpha generation; exclusionary vs. best-in-class) and engagement (active ownership vs shareholder activism). This paper intends to provide perspectives on the wide spectrum of different methods applied by investors as they seek to integrate corporate governance in their equity investments, highlighting the pitfalls and benefits attached to each approach.