Should Institutional Investors Use Their Considerable Market Power to Influence the Human Resources Practices of Companies?

By Kirsten Anderson, Shelley Marshall and Ian Ramsay

There has been considerable speculation recently regarding the effect of the growing prevalence of institutional investors in the equity markets on investee company behaviour.

Institutional investors include superannuation funds, banks, mutual funds and insurance companies. It has been posited that the growth of institutional investors may lead to the pursuit of what is generally referred to in the human resource literature as 'high commitment' employment practices in investee companies.1 This may be because institutional investors are using 'voice' mechanisms to pressure investee companies to adopt 'high commitment' human resource practices. For the purposes of our study it is sufficient to note that these labour management practices typically involve managerial attempts to motivate and manage workers through a series of workplace practices that incorporate the interests of employees rather than through strict command and control structures.2 These might include investment in staff training and development, employment security, flexible workplace practices and self-directed work teams, investment in occupational health and safety, equitable remuneration, incentive pay, and 'partnerships' and consultation with employees and/or their representatives. In formal labour relations terms, it might also include respect for freedom of association, the right to bargain collectively and other core labour standards.

The purpose of this study is to discover whether it is the intention of institutional investors to encourage investee companies to adopt 'high commitment' employment practices through case studies of twelve prominent institutional investors with funds invested in the Australian equities market and the Australian Council of Superannuation Investors (an industry body representing 39 superannuation funds).

Centre for Corporate Law and Securities Regulation and Centre for Employment and Labour Relation Law, The University of Melbourne.