Greed, Accountability and Say on Pay
Chapter 3: Institutional investor rule making
The patterns of regulation for remuneration practice outlined in the previous chapter in Tables 2.1 and 2.2 confi rm that the primary rules for regulating practice within companies are not ‘laws’ found on the statute books, but ‘rules’ in the form of statements of remuneration practices from institutional shareholders, corporate governance councils and business interest groups. Of course, not all of these statements are clearly labelled as ‘best practice’. For example, the ABI calls its set of rules guidelines1 and the Financial Reporting Council (FRC) presents its statements of practice as a code, while the Australian equivalent is principles and practice.2 For the Institute of Chartered Secretaries and Administrators (ICSA), their statement is guidance; 3 while the proxy advisor Riskmetrics or Institutional Shareholder Services (Australia) presents its statements on practice as policy.4 Given these descriptions (aside from code, which indicates an all- encompassing statement of the rules), all suggest a degree of flexibility in application. Is this how the rules work in practice? What makes the practices described in these documents ‘best’? Are they best because they are preferred by shareholders, so signal what shareholders will actively monitor? Or are they best because they truly are the practices that successful companies adopt and thus should be emulated by any company seeking similar success? In the field of corporate law, ‘best practice’ is seen as a form of ‘soft law’ that sets aspirational standards rather than the minimum standards and rule- like forms typical of ‘hard’ law. 5 From the perspective of the regulated remuneration cycle, best practice standards or principles are treated as another set of rules that apply to shape remuneration practices within companies.
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