NETHERLANDS - Institutional shareholders are too passive, making little use of their shareholder rights and are in danger of developing a herd mentality, says Eumedion, the Dutch institutional corporate governance platform.

Institutions rarely take back their proxy shares and voting at shareholder meetings is largely done via voting bureaus such as Institutional Shareholder Services (ISS), according to a study commissioned by Eumedion and the Dutch Corporate Governance Foundation.

The study, which surveyed around 100 European institutional investors, found that corporate governance is important.

But "it retains a symbolical character," researcher Hans van Oosterhout, of the Rotterdam-based Erasmus University which conducted the research, told newspaper Het Financieele Dagblad.

The fact that since beginning of this year shareholders have had to execute their own voting policy has caused a surge of business for firms like ISS, argues Van Oosterhout. This may result in a "herd mentality".

ISS has no figures to back up Van Oosterhout's claim, though the company refutes that it is causing a herd mentality among institutional shareholders.

"Of course once investors are encouraged to vote you can expect that they look for help on how to vote," ISS spokeswoman Christel Dumas told IPE.

Commenting on the research, Jean-Nicolas Caprasse, ISS's managing director for the UK and Europe, added: "Some institutional investors maybe follow our recommendations without second thought, which is not something we encourage."

Rients Abma, chief executive of Eumedion, told reporters yesterday he wants shareholders to be more active and to take back the proxy shares they have given out. Around 62% of pension funds give 10% of their portfolios out via proxy, he argues.

Those shares are rarely taken back, not even when hedge funds put pressure on the board, said Abma.

Eumedion wants shareholders to start acting together, exchanging viewpoints and starting a dialogue with the board.

This dialogue is currently missing, because the regulator is too unclear about what is and is not allowed, according to Abma.

Also the cost of a more active position plays a role in shareholders' passivity though he added.

Caprasse concedes that the European markets are characterised by a strong presence of strategic shareholders and low attendance rates of the free-float at general meetings. "As a result, the voting power of the free-float is diminished," he said.

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