Oecd legal Instruments

II.D. 
Shareholders, including institutional shareholders, should be allowed to consult with each 
other on issues concerning their basic shareholder rights as defined in the Principles, subject to 
exceptions to prevent abuse. 
It has long been recognised that in companies with dispersed ownership, individual shareholders might have 
too small a stake in the company to warrant the cost of taking action or for making an investment in monitoring 
performance. Moreover, if small shareholders did invest resources in such activities, others would also gain 
without having contributed (i.e. they are “free riders”). In many instances institutional investors limit their 
ownership stake in individual companies because it is beyond their capacity or would require investing more 
of their assets in one company than may be prudent or permitted. To overcome this asymmetry which favours 
diversification, they should be allowed, and even encouraged, to co-operate and co-ordinate their actions in 
nominating and electing board members, placing proposals on the agenda, and holding discussions directly 
with a company in order to improve its corporate governance, subject to shareholders’ compliance with 
applicable law, including, for example, beneficial ownership reporting requirements. Some major institutional 
investors have established initiatives to facilitate the co-ordination of their engagement, for example to 
address climate-related concerns. When publicly traded companies have controlling shareholders, these 
actions also safeguard the interests of minority shareholders while increasing their voice in company matters. 
More generally, shareholders should be allowed to communicate with each other without having to comply 
with the formalities of proxy solicitation. 
It must be recognised, however, that co-operation among investors could also be used to manipulate markets 
and to obtain control over a company, with a view to bypass takeover or disclosure regulations which may 
otherwise apply. Moreover, co-operation might also be for the purpose of circumventing competition law. 
Safeguards may be needed to prevent anticompetitive behaviour and abusive actions, particularly in 
jurisdictions where institutional investors are significant owners in publicly traded companies and their co-
ordinated actions could have stronger influence on companies’ decisions. Disclosure of the co ordination 
policy could provide clarity to the market on the scope of such actions. However, if co-operation does not 
clearly involve issues of corporate control, or conflict with concerns about market efficiency and fairness, the 
benefits of more effective ownership may still be obtained. To provide clarity and certainty among 
shareholders, regulators may issue guidance on forms of co-ordination and agreements that do or do not 
constitute such acting in concert in the context of takeover, competition and other rules.