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Anglo-American and European Models<br />
An<strong>to</strong>nio<br />
Borges<br />
Even though family firms<br />
may not always remain<br />
100% within the family,<br />
families will continue <strong>to</strong> be significant<br />
block-holders in many corporations for<br />
the foreseeable future. <strong>The</strong> key here is how <strong>to</strong><br />
solve the time-consistency problem. It is in their<br />
interests <strong>to</strong> deal with inves<strong>to</strong>rs, and the market<br />
as a whole, in a fair manner. <strong>The</strong>y all stand <strong>to</strong><br />
gain. <strong>The</strong> problem is, in the short term, there are<br />
all kinds <strong>of</strong> incentives <strong>to</strong> do otherwise.<br />
How can we adapt the model <strong>to</strong> make it more<br />
compatible with long-term objectives 1) Let us<br />
not allow families or block-holders <strong>to</strong> leverage<br />
their position beyond their legitimate influence.<br />
This is <strong>of</strong> course a very difficult point in Europe<br />
because people have built positions <strong>of</strong> control<br />
through all kinds <strong>of</strong> schemes which cost a fortune,<br />
and they are not ready <strong>to</strong> give these positions<br />
up without a fight.<br />
Anything that improves shareholder sovereignty,<br />
one-share-one-vote, should be welcomed.<br />
In the same way, a reduction <strong>of</strong> government<br />
intervention, golden shares and so forth should<br />
be welcomed.<br />
In my view, the way <strong>to</strong> make the two models<br />
compatible with each other is <strong>to</strong> accept, defend,<br />
even recommend block-holders, on condition<br />
that they remain a minority, and/or if things go<br />
wrong, a takeover is possible and they can be<br />
removed. Experience shows, and there is plenty<br />
<strong>of</strong> research about <strong>this</strong>, that family firms usually<br />
do very well but they have one major problem:<br />
they have no regeneration mechanism if things<br />
go wrong. <strong>The</strong>re is no natural way <strong>of</strong> removing<br />
or changing what does not work. If families are<br />
better at long-term strategies and long-term<br />
management <strong>of</strong> a firm, translating <strong>to</strong> higher performance,<br />
the other inves<strong>to</strong>rs should be happy<br />
with that, so long as they still have a say. Blockholders<br />
with 30-40% should be an interesting<br />
model.<br />
<strong>The</strong>re are good and bad features<br />
in the three models<br />
Paul Flather<br />
mentioned by An<strong>to</strong>nio.<br />
Can you see any convergence, and if so, where<br />
would you like <strong>to</strong> see more<br />
<strong>The</strong>re is no doubt that people<br />
in Europe see what is Borges<br />
An<strong>to</strong>nio<br />
happening; they see the<br />
competition across financial<br />
markets and the first steps <strong>of</strong> cross-border<br />
investment, like the Santander-Abbey National<br />
s<strong>to</strong>ry. This brings up an important issue: are the<br />
UK inves<strong>to</strong>rs ready <strong>to</strong> trust Spanish corporate<br />
governance Apparently they did.<br />
People are still afraid <strong>of</strong> <strong>this</strong>, and want more<br />
protection, but at the same time we are all aware<br />
what direction things are going. To quote Colin<br />
Mayer’s research on 19th Century Britain, when<br />
15 or 16 different s<strong>to</strong>ck markets actually became<br />
consolidated in London, inves<strong>to</strong>rs that typically<br />
only invested in their own region learned how <strong>to</strong><br />
trust firms that were further away and less wellknown.<br />
This all happened without government<br />
regulation and without a great deal <strong>of</strong> intervention,<br />
but it also happened because it was a successful<br />
process – if there had been a lot <strong>of</strong> scandals<br />
along the way, perhaps things would not<br />
have evolved the same way. <strong>The</strong> path <strong>to</strong> integration<br />
is always dependent upon a great many variables,<br />
that may or may not lead <strong>to</strong> successful<br />
convergence in the creation <strong>of</strong> a European capital<br />
market.<br />
In terms <strong>of</strong> EU convergence, I Chris Pierce<br />
would certainly like <strong>to</strong> see<br />
improvement <strong>of</strong> corporate<br />
reporting. <strong>The</strong>re are quite considerable divergences<br />
between Sarbanes-Oxley, IAS, GAAP and<br />
other areas <strong>of</strong> national corporate reporting, and<br />
if that area was tidied up I think the world would<br />
be a better place.<br />
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