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Strategies and Balance tion would be desirable. Several participants believed that the rate of change will slow down in the next two years, partly because the recent flurry of activity has plugged several major gaps, and partly because the public’s attention has moved on. The role of ownership When discussing the “management and owners” of a company, it is important to recall that the shareholders are not the owners, as the company is only a legal abstraction – only the company’s assets are truly owned. However, the concept of ownership is still a useful handle on the question: Controlling shareholders perhaps provide a “more fertile ground for expropriation.” By contrast, in a widely-held company there may be confusion and risk in deciding who will take up the mantle in overseeing management of the company. It is important to understand the ownership structure because the point of corporate governance is to penalise companies where there is a misalignment of interest between the controlling shareholder and the minorities. 30
Anglo-American and European Models SESSION III Which Model Works Better Contrasting Anglo-American and European Models Professor Colin Mayer Peter Moores Professor of Finance, Saïd Business School, University of Oxford There is considerable debate on this subject, taking as its background the observation that there appear, at least superficially, to be significant differences across countries in terms of the structure of their corporations and the way in which corporations are governed. At one end of the spectrum is the “Continental European model,” which is actually is applicable to most countries in the world, in which ownership is dominated by large shareholders or blocks of shares held by particular investors. Graph 1 below records the holdings in excess of fifty percent in listed companies in a variety of countries, showing the proportion of listed companies in those countries in which there is a single shareholder which holds more than fifty percent of shares in a company. The graph records that in countries like Austria, Belgium, Germany and Italy, in more than fifty percent of listed companies there is a single majority shareholder. In contrast if you look at the UK, there is a single majority shareholder in only two percent of listed companies; in the US its about the same. It is even more striking on Graph 2, if you look at the proportion of companies in which there is a single shareholder with a minority blocking control in a company, with more than twenty-five percent of shares. In continental European countries, in more than eighty percent or in some cases more than ninety percent of companies there is such a shareholder, whereas in the UK it is around about fifteen percent, and in the US it is 5-8 percent depending on which market you look at. It is not only in terms of the size of the shareholdings that there appear to be substantial differences. It is also in terms of the composition, so in many countries outsides of the UK there is a dominance of holdings by families and trusts holding on behalf of families, as in the case of Germany, as Graph 3 demonstrates below. The other striking feature of this graph is the extent to which there are holdings by other companies: inter-corporate holdings, cross-shareholdings and pyramid structures by which companies hold shares in other companies as a way of controlling those companies lower down in the pyramid. In contrast in Britain, as we know, the dominant source of shareholding comes from financial institutions, which own sixty or seventy percent of the shares in companies. Graph 4 (below) brings out another feature: the importance of insider-director holdings in the context of the UK. These observations first raise the question of to what extent are they temporary or are they likely to be eroded over time. In fact, the differences are very persistent Since the end of the Second World War, the structure of ownership in Canada, Germany, Japan UK and US the trends we observe today have existed: the dominance of families and corporate holdings in Germany, dominance of corporate holdings in Japan, and family holdings in Canada – against the widely held shareholdings in the UK and the US. Things may be changing now, but at least those structures have persisted for an extended period. The questions that we ought to raise in this session are, first of all, what (if anything) is the significance of these differences Do they matter in terms of corporate governance and the performance of corporations Do we prefer one system to another Is it the fact that these systems are changing an indication that we are converging, and is the widely-held view that we are converging on an Anglo-American structure or should be converging on an Anglo-American structure, the correct one What role will different players, in particular financial institutions, play as these governance structures change To address these questions we have a group of very well qualified people to talk on this subject. Our first speaker is Antonio Borges who is a Vice President at Goldman Sachs and a Chairman of the European Corporate Governance Institute, which is a body which brings together academics and practitioners across Europe and in the United States from both the law and an economics and finance background to address corporate governance issues. Before that, Antonio was the 31
Page 1 and 2: Restructuring Corporate Governance:
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