Ownership, Activism and Engagement: Institutional Investors as Active Owners Terry McNulty* and Donald Nordberg ABSTRACT Manuscript Type: Conceptual Research Question/Issue: We research two questions: First, why do some institutional investors operate at a distance from organizations seemingly acting only to “exit” and “trade” shares, while others actively engage through various means of “voice”? Second, what processes and behaviour are associated with active ownership? Research Findings/Insights: We develop the concept of active ownership by drawing on contrasting theories and images of ownership, identifying antecedents of active ownership and distinguishing between alternative processes of active ownership. Theoretical/Academic Implications: Alternative pathways to active ownership contrast the distant, sometimes adversarial nature of shareholder activism with an engaged, collaborative relationship between investors and corporations. Few studies examine active ownership as a process of engagement and mutual exchange between parties taking a generally longer-term perspective toward investment in the firm and its affairs. After modeling active ownership, we develop a research agenda of substantive issues ranging from market and institutional conditions, through investment organization and practice, to board and investor relations. Practitioner/Policy Implications: Opening up the multidimensionality of engagement and relations between investors and corporations is crucial to promoting good corporate governance. Policymakers and practitioners require such knowledge when anticipating and developing adjustments to institutions of corporate governance. Keywords: Corporate Governance, Institutional Investors, Ownership, Activism, Engagement INTRODUCTION T he global financial crisis of 2007–09 raised questions about many aspects of the economic system. After decades of concern about how corporations govern themselves, more attention is turning to other aspects of the complex web of connections that make up the system of capital. This article ex- amines one aspect of that system, shareholders – in particular institutional investors and their engagement with the compa- nies in which they invest. We review a broad body of literature crossing several disciplines to develop a model of active own- ership by institutional shareholders and a related research agenda. Using the model, we address the following questions: First, why do some institutional investors operate at a distance from organizations seemingly acting only to “exit” and “trade” shares while others actively engage through various means of “voice”? Second, what processes and behavior are associated with active ownership? The literature on shareholder activism 1 addresses these questions according to the characteristics of activists, target firms, and the environment (Goranova & Ryan, 2014). However, while shareholder activism is sometimes described as a broad phenomenon (Chung & Wynn, 2014), our reflection on the literature suggests it has been treated in quite a narrow way conceptually, methodologically, and empirically. More can be done to understand institutional investor heterogeneity and related motivations, processes, and effects involved in what we term “active ownership.” Our concept of active ownership includes shareholder activism, defined as “actions taken by shareholders with the explicit intention of influencing corporations’ policies and practices” (Goranova & Ryan, 2014: 1232) but extends to a wider range of institutional investor behavior, that incorpo- rates developing relations with corporations through different influence processes and intent. This type of on-going active ownership is likely to involve mutual exchanges aimed at understanding more than change, and taking a generally longer-term perspective toward investment in the firm and its affairs. Continuing engagement of this sort does not preclude change-seeking, but it is part of the process, rather than the process itself. Defined in this way, active ownership also contrasts with passive ownership, which involves holding the shares; collecting dividends and perhaps voting, but in an undeliberated way; 2 and trading. This article thus augments recent work on shareholder activism (Goranova & Ryan, 2014) by considering alternative *Address for correspondence: Terry McNulty, University of Liverpool Management School, Chatham Street, Liverpool L69 7ZH, UK. Email: t.h.mcnulty@liverpool.ac.uk © 2015 John Wiley & Sons Ltd doi:10.1111/corg.12143 346 Corporate Governance: An International Review , 2016, 24(3): 346–358