to download a Special Report of this meeting - The Europaeum

More documents

Recommendations

Info

Anglo-American and European Models the new economy What is the sanction that would make the institutions get into action Antonio Borges Iwould like to correct a possible misperception. I would not like to say that the US model is the best in the world for every purpose. I think we have to understand some of its disadvantages, but I would stand by the importance of market scrutiny and how much more powerful it is in the US than in Europe. I am not discounting the quality of the work that has been done, particularly in Britain, on analysis and research of corporations. I am simply saying that the market pays less attention to it. In the US, if a company’s stock price starts going down, action follows quickly – managers get swept away, or if that does not happen, somebody will take over the company. You might argue that it is knee-jerk, too fast, but it is much more powerful in the sense that managers are more afraid there than anywhere else in the world. In Britain, managers are afraid of the institutional investors, and rightly so; they are not as afraid of the market because it is less powerful. Indeed, this is a very important difference between the US and Britain. The role of the institutional investors is crucial here, but much less important in the US. In fact, US board members are not supposed to talk to investors, or if we do, we must talk to all of them at the same time. That is the point of fair disclosure. The US market operates on this premise: you are not supposed to give privileged information to anybody. We are not supposed to speak to influential investors in the US, be they institutions or block-holders. They are kept at arm’s length. In Guy Jubb terms of investment by institutions, I would observe two things. In the short term, when markets are bullish, investors can perhaps lean back and say “everything is going fine” – the problem is when markets start to go bad again, which is what separates the goats from the sheep. It puts real issues at the institutions’ doorstep and, from a political point of view, I suggest institutions are quite easy prey as politicians start to ask “where were the investors all this time” Over Chris Pierce the last year, the role of institutions in the US model has significantly changed, due to things like the Disney fiasco and the problems with Warren Buffett. There are real political issues concerning the American institutions – in my last few visits there, the free rider issue is becoming more important and has been played by TIA and others. I am concerned that investors should, at an international level, play the principal part in companies’ operations. I go along to a great extent with what Alastair said on this topic earlier. To Guy Liu what extent do we combine in European CG both strong institutional investors as well as family shareholdings How best to incorporate an American-style investment structure onto the traditional family approach which has worked well so far in Europe (not to mention the Far East) When Guy Jubb is a family not a family We have seen that what starts off as a family company (e.g. Morrison’s in the UK) tends to start off with Mr Morrison as the entrepreneur; through trust arrangements it gets into the children’s hands and over the years the trusts become more diverse and the ownership becomes more diverse. In trying to combine what is essentially private equity (i.e. family equity) with public equity, there is always a significant degree of tension: the public equity is always looking to see when the private equity is going to hand over its shares (whether that’s a good thing or a bad thing, the other shareholders are continually waiting around for this to happen). The boards of companies, in that situation, can be rather comic. Simultaneously, they know that the family has an interest and the board needs to look after it, and the boards can play the family off the other investors. Because the interests get so diversified over time – Sainsbury’s is an interesting case in the UK – the accountability to the family is perhaps a critical issue. This is what I mean by “when is a family not a family.” In substance, the problem of getting from family-owned to public companies, there is no easy solution. Iagree Chris Pierce that the private business (private equity) is different from public equity and in a public company there are certain duties and responsibilities that the company owes the shareholders. If you don’t like those responsibilities, you should stay within the private arena. I do see that many organisations want access to more finance – but if they want access to this finance they will have to be more transparent and may have to give up the controls. 42
Anglo-American and European Models Antonio Borges Even though family firms may not always remain 100% within the family, families will continue to be significant block-holders in many corporations for the foreseeable future. The key here is how to solve the time-consistency problem. It is in their interests to deal with investors, and the market as a whole, in a fair manner. They all stand to gain. The problem is, in the short term, there are all kinds of incentives to do otherwise. How can we adapt the model to make it more compatible with long-term objectives 1) Let us not allow families or block-holders to leverage their position beyond their legitimate influence. This is of course a very difficult point in Europe because people have built positions of control through all kinds of schemes which cost a fortune, and they are not ready to give these positions up without a fight. Anything that improves shareholder sovereignty, one-share-one-vote, should be welcomed. In the same way, a reduction of government intervention, golden shares and so forth should be welcomed. In my view, the way to make the two models compatible with each other is to accept, defend, even recommend block-holders, on condition that they remain a minority, and/or if things go wrong, a takeover is possible and they can be removed. Experience shows, and there is plenty of research about this, that family firms usually do very well but they have one major problem: they have no regeneration mechanism if things go wrong. There is no natural way of removing or changing what does not work. If families are better at long-term strategies and long-term management of a firm, translating to higher performance, the other investors should be happy with that, so long as they still have a say. Blockholders with 30-40% should be an interesting model. There are good and bad features in the three models Paul Flather mentioned by Antonio. Can you see any convergence, and if so, where would you like to see more There is no doubt that people in Europe see what is Borges Antonio happening; they see the competition across financial markets and the first steps of cross-border investment, like the Santander-Abbey National story. This brings up an important issue: are the UK investors ready to trust Spanish corporate governance Apparently they did. People are still afraid of this, and want more protection, but at the same time we are all aware what direction things are going. To quote Colin Mayer’s research on 19th Century Britain, when 15 or 16 different stock markets actually became consolidated in London, investors that typically only invested in their own region learned how to trust firms that were further away and less wellknown. This all happened without government regulation and without a great deal of intervention, but it also happened because it was a successful process – if there had been a lot of scandals along the way, perhaps things would not have evolved the same way. The path to integration is always dependent upon a great many variables, that may or may not lead to successful convergence in the creation of a European capital market. In terms of EU convergence, I Chris Pierce would certainly like to see improvement of corporate reporting. There are quite considerable divergences between Sarbanes-Oxley, IAS, GAAP and other areas of national corporate reporting, and if that area was tidied up I think the world would be a better place. 43
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 and 34: Anglo-American and European Models
Page 43: 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

to download a Special Report of this meeting - The Europaeum

Create successful ePaper yourself

Delete template?

Save as template?