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Anglo-American and European Models Graph 1: The proportion of companies in which one individual owns in excess of 50% of the shares Graph 2: The proportion of companies in which a single shareholder has more than 25% of the shares. Graph 3: The composition of ownership in the UK Graph 4: The composition of ownership in Germany 32
Anglo-American and European Models Dean at INSEAD and so he has experience which comes both from an academic perspective and from that of a practitioner. It is a great pleasure to be here today and a great honour as well to be at such a distinguished university with such an extraordinary group of people and in particular next to my colleague Colin Mayer, who is one of the pillars of the Professor Antonio Borges, Vice President, Goldman Sachs, and Chairman, European Institute of Corporate Governance European Corporate Governance Institute as you may well know. Unfortunately, we have very limited time and this subject is very complex and very serious and it deserves in-depth study. I will have to brief and therefore somewhat simplistic – I hope you will forgive me. I will try to be provocative as well to generate some discussion and then we will see how things develop in the debate. First of all, I will take a relatively short-term perspective, say five to ten years as opposed to a hundred years. I hope in one hundred years we will have all converged to the Anglo-American model, as Colin was saying, but that may take a little bit of time so I will take a shorter view. I will also take a view on how things operate in practice and the extent to which corporate differences do have a significant impact on market efficiency and also on distributive justice. This is a summary, so I will cover governance models, myth and reality. This caricature that there is an Anglo-American model and then there is the rest of the world. Its not quite like that. The practice in the US and the practice in Britain are quite different, with significant implications for what we are debating here. Europe is a different world all together, starting from the ownership patterns that Colin has already highlighted. The European model is not necessarily inferior – in many ways it is actually superior, which is why it has lasted so long and why people continue to rely on it – but it also brings considerable problems and there is a concern about its survival for the future because, as we move towards what I will boldly call the new economy, one in which the rules of the game are not quite the same, the governance model in Europe may not be the most appropriate. First of all, the caricature of standard corporate governance problems: the agency problem, the distance between shareholders and management, the temptation of managers to take over companies as if they were their own and forget about shareholders. How do you protect against that You create these model companies, these single standing companies, meaning that they are not part of a vast conglomerate or pyramid system with very confused systems of control. You have dispersed ownership. They should be open to takeovers. Boards should be independent from management and there should be a system to protect minorities carefully. This is the theory. This is the ideal Anglo-Saxon model. If we then go to practice we are actually very far from that and in the US it is amazing how far we are from this theory. In fact, we often have boards dominated by management, both in the sense of the number of executives who are on the board relative to non-executives, but also in the sense that non-executives are friends of the chairman, chosen by the chairman and expected to be loyal to the chairman. The management is usually quite powerful, with a huge degree of authority in the US tradition. In particular, the role of the CEO (who is also chairman in almost every case) is crucial and most analysts, observers and researchers identify the results, performance, etc of the company with the managerial style of the chairman/CEO. If you talk to US directors, if you talk to US chairmen certainly, they will say there is no proof whatsoever that any system is better than this one. This is how things are done and they work well – “please prove to me that by separating the roles or by making the CEO more accountable to some other power that this would improve performance: it does not and therefore we stick to our rules.” This is not very close to the model we had in mind, of shareholder sovereignty represented well at the board and the board independent from management and the management fully accountable for its decisions. How come the US system works well Because above the all-powerful chairman/CEO and the formidable management there is the market, and the market is very strong indeed. It is a source of constant scrutiny; market mechanisms exercise a ready sanction over poor performance and can compel the removal of the chairman/CEO if performance is not satisfactory, no matter how powerful he may be. In fact, one could argue that in the US, chairman/CEO tenure is too short, with an average length of the mandate between two and three years. I think we would all agree that within two or three years there is very little you can prove, and very little you can do. If anything, we should perhaps claim that there is a bit of market myopia and that hasty sanctions can get in the way of a longer-term view. But there is no question, in my view, that it is through the market mechanism that some degree 33
Page 1 and 2: Restructuring Corporate Governance:
Page 3 and 4: Contents Contents Introduction.....
Page 5 and 6: Introduction this point most clearl
Page 7 and 8: Introduction The Said Business Scho
Page 9 and 10: Welcome context of the Europaeum, w
Page 11 and 12: Institutional Activism talking to o
Page 13 and 14: Institutional Activism associated w
Page 15 and 16: Institutional Activism information
Page 17 and 18: Institutional Activism Ihave been d
Page 19 and 20: Institutional Activism provided sub
Page 21 and 22: Strategies and Balance SESSION II S
Page 23 and 24: Strategies and Balance kets, but we
Page 25 and 26: Strategies and Balance in our exper
Page 27 and 28: Strategies and Balance the non-exec
Page 29 and 30: Strategies and Balance Discussion T
Page 31 and 32: Strategies and Balance Bebchuck sho
Page 33: Anglo-American and European Models
Page 37 and 38: Anglo-American and European Models
Page 47 and 48: Round Table Discussions Round Table
Page 49 and 50: Concluding Remarks Perhaps we shoul
Page 51 and 52: Appendix B APPENDIX B Biographies o
Page 53 and 54: Appendix C APPENDIX C Participating
Page 55 and 56: Appendix D APPENDIX D Profiles of C
Page 59 and 60: The Europaeum Vision As the pace of

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