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Anglo-American and European Models
lighted some of the important differences
between the approach in America (also noted by
Antonio) and the approach taken in Britain. I
will come back to that in a moment. Second,
does the European model exist We have talked
about some of the differences with reference
shareholders in certain markets, and there are
also differences to do with voting and infrastructure.
I propose that there is actually no such
thing as the “European model.”
Institutional investors are important players
in this – of course I would say that, but nonetheless
– they are the people who are involved along
the length of the governance chain, providing the
glue between the investors, the shareholders,
ultimately the men in the street, and the companies
in which we invest. And investors themselves
are not homogeneous: in particular, hedge
funds are very diverse. Where do they fit into
corporate governance
Lastly, in sharing my views with you, I want
to touch a little bit on the question of engagement,
which is an important catalyst in making
sure corporate governance actually works.
Particularly between institutions and companies,
but it perhaps goes further down the chain as
well.
In terms of the myths of models, it seems to
me, having been in this so-called business for a
number of years now, that corporate governance
is more about chains, and the chains can be
extremely complex – like playing three-dimensional
chess at times.
At the very basic level, you have at one end
the investor, who gives his money to Standard
Life Investments, who then invests it in the company.
The company pays the dividend, which
comes back to Standard Life Investments, and is
then put into our client’s pension or other investment
vehicle.
When we come back to the complex governance
chain, this relationship takes on new
dimensions. Our clients come in different shapes
and sizes. Sometimes we have pension funds,
sometimes we have charities; sometimes the pension
funds are large, with demographically
mature members, and sometimes they are young.
Each has different preferences and different liabilities.
There are NGOs that impact on the governance
chain, which themselves represent different
subsections of men in the street (the ultimate
beneficiaries of all this). There are representative
bodies, governments, legislators… and down
at the company end you have different companies
in different jurisdictions, with their attendant
reference shareholders and disparate goals.
Within the chain, you have a lot of complexity,
and the chain is only as strong as its weakest
link. There are different chains in different jurisdictions,
and even different chains in the same
jurisdiction. There is evidence of this in the UK
when, after privatisation, a number of companies
had special shares (“golden shares”), which carried
different rights to the others.
But chains have the same beginning and the
same end. We talk a lot about the chain going
from the institution down to the company, but
the chain is ultimately my client’s money going
from us to the company, and back as a dividend.
My clients are the beginning and the end of that
chain, but when you speak to our clients walking
around Oxford, they are almost entirely unaware
of corporate governance.
In my ten, eleven years at Standard Life dealing
with this responsibility towards 2.5 million
policyholders, I have probably received twenty or
thirty letters about corporate responsibility and
how we perceive our responsibilities about corporate
governance. From a macro policy level,
we have a big issue relating to the education of
investors on investment practices, and corporate
governance is an important subset of this education.
In terms of dealing with chains, each company
has a unique corporate governance DNA. No
two companies are the same: they have different
shareholders and different regulations. That is
the great interest for me in corporate governance
– no two companies or situations are ever quite
the same. I get to match the style of the investor
to the different styles and DNAs of the companies.
The DNA will determine the cultural style
of the company, and as ever, the DNA chain is
only as strong as the weakest link.
Moving along to institutional investors, I
believe they can control the governance chain.
Whether they do control the chain is another
question altogether, but institutional investors
are involved both in policy engagement and in
corporate engagement. They lobby on policy,
largely through representative bodies but also
individually. They use the media as a mechanism
for lobbying views on particular policy.
In terms of engagement, institutions are
involved in both proactive corporate engagement,
and in reactive engagement where institutions
have to roll up their sleeves and get
involved. Cable and Wireless is an example of
this; Marconi is another.
Reactive engagement has been much in the
news lately, but proactive engagement is just as
important: it is where we pick up the phone to
companies, and say “can we come round and
have a cup of coffee” There may not be a particular
issue to talk about, but it is an important
part of the dialogue between institutions and corporations,
keeping the chain together.
Comparing between the different jurisdictions
in the US, the chain tends to be litigious and con-
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