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Institutional Activism
14
tainly a minority shareholder oppression problem,
but not the classic “agency” problem that
economics point out here.
That’s extremely important to the young
woman who just finished, because she belongs to
one of these very wealthy families. In her thesis,
she put a footnote saying “interview with the
Minister of Finance.” I asked, “oh how did you
get an interview” and she replied, “oh, that’s my
uncle.”
Alastair
Ross
Goobey
Actually, when looking at
the lack of “agency problem”
in large shareholder
concentrations, I do not think
there is necessarily an identity of
interest between the outside shareholders and
controlling shareholders of family-owned companies.
What we have found as investors is that
these families don’t seem to understand that
swapping assets from their private interest to the
public company at the wrong price is not in the
interest of the outside shareholders, maybe even
the interest of the insider shareholders.
The agenda of the controlling shareholders
can be very different from the agenda of longterm
external institutional shareholders. They
may be more concerned about maintaining control
of the company than they are, necessarily,
with maximising long-term shareholder returns.
We have seen this in Europe now, of course, with
the takeover directive in which the Swedes managed
to maintain super voting structures to protect
the Wallenberg family control over most of
Swedish industry. That system is not necessarily
to the advantage of outside investors because it
protects Swedish industry from normal market
forces in some ways.
At Hermes we have had to face the question
of how to engage with large dominant shareholders,
whether governments or families. Before we
set up our European focus fund, we found that
many of these companies, when you get into
them, have disagreements within the families or
within the core shareholders which an external
stimulus helps draw to a conclusion. We have
very rarely been told, “go away, we are not going
to talk to you,” and we have seen some really
substantial achievements. You can take an
example like Orkla in Norway, a sort of holding
big holding company which had a huge holding
in Carlsberg. It was not an efficient holding in
Carlsberg and we were pressing them to do
something about the inefficient way they were
using a Norwegian holding company. Orkla did
actually unwind that, to the great advantage of
Orkla shareholders, and we would say that we
did not have any real levers other than being
large shareholders. Norway is probably even
more protective of its own companies than
Sweden, so we found this result very encouraging.
You can approach these companies, and you
would be surprised how often you can actually
get through the door and get some traction.
Sir Ronald
Grierson
Iwould just like to come
quickly to the defence of
dominant directors in businesses.
If you look back on the
history of capitalism, in this country alone, you
will find that most successful business were
started by people who remained dominant, and
sometimes their children and grandchildren
remained dominant, and the moment they
departed from the scene – Marks & Spencer’s,
Sainsbury’s, you name it – things started to
unwind. So before we start being too unkind to
the memory (and indeed the current observation)
of dominant personalities in business, I
think we need to remember that I have only
recently retired from typical example of it: until a
couple of years ago, I was a director of the Daily
Mail, which is probably the only – not probably –
is the only company in the FT100 which still has
differential voting rights. But it is very well run
and the shareholders are satisfied, so you need to
be careful: if ever the family sold out, I am not so
sure the business would go on being quite as successful
as it is now – but that’s a subjective view
and you would expect me to say that.
There have certainly been dominant personalities
in business that turned out to be either
crooks or incompetent. Of course, that is true.
But rather than individuals, I was talking about
family businesses which were created by families
and carried on in some cases for generations.
When you bring up examples like Marconi or
Vivendi, these are all cases of irresponsible people
who seized control of the companies – but
may I point out that in every single one of these
examples, incompetent leaders were followed
enthusiastically by institutional investors.
Murray
Steele
Cranfield
School of
Management
Corporate Governance, in
the sense covered by this
conference, is a new addition
to the business landscape –
I think you could genuinely
argue that we are only interested
because of the impending pension crisis. In
response to Sir Ronald’s point about the “perfect
non-executive director,” I train non-execs regularly,
and it can be done. His approach seems
somewhat outmoded to me. Therefore, my question
is more to Alastair Ross Goobey: how far do
you think you can go with activism