Event Report: Ownership with Diverse Shareholders
ECGI and IESE Business School Center for Corporate Governance organised a conference on "Corporate Governance And Ownership With Diverse Shareholders", which took place in Barcelona on 25-26 October 2019. The conference consisted of eight sessions which allowed for rich discussions on the concept of capitalism and the concept of ownership, "enlightened shareholder value", the rise of passive investing and its consequences particularly in relation to engagement and competition, the influence of engagement on trading decisions, the behaviour of activist directors and market awareness, the increasing presence of mutual funds in unicorn investments, the links between short-termism and equity vesting, and the ongoing debate over common ownership; could it (does it) limit competition or improve efficiencies and innovation?
Producing Profitable Solutions to the Problems of People or Planet
The concepts of capitalism and ownership were called into question in the first presentation, arguing that they are no longer appropriate, if they ever were. The idea of "enlightened shareholder value" emanating from the idea that doing well for all stakeholders will also benefit the shareholders was offered as a modern alternative. In this scenario, the board is seen as a trustee that manages the corporation with a clearly defined purpose, for the benefit of the parties in whose interests the company has been established. That purpose should be based on the premise of producing profitable solutions to the problems of people or the planet, while also not profiting by creating problems for the people (eg. corruption or pollution). The discussion focused on some of the trickier aspects of such a framework, such as who should define the purpose (which is a dynamic construct), whose interests should take precedence, and does accountability to everyone mean accountability to no one? These questions and others are addressed in the event summary report below.
To Engage or not to Engage
The importance of engagement was discussed in the next two sessions. It was noted that the rise and evolution of the passive investing market could result in a lower overall level of monitoring and engagement between investment firms and companies. Taken in combination with the debate on common ownership, which was also discussed at the conference, there are alternate risks to consider along with competing theoretical models, leading to calls for further research. For active investing, evidence was presented that engagement has a significant influence on trading decisions, and furthermore can lead to superior returns. However, the case in question was based on a best in class institutional investor, which may also provide an upper limit on the value of engagement.
On common ownership, which does not require engagement to create risks, the potential for reduced market competition on the one hand or efficiency gains on the other, continued to be discussed. It was noted that intra-industry common ownership could potentially have an anti-competitive effect, but inter-industry effects could be pro-competitive. The session called for a better understanding of the channels of transmission of ownership patterns into competitive outcomes via corporate governance, as well as a need for more empirical evidence on the impact on consumers, innovation and general equilibrium effects.
Details of these sessions and others on the informed trading of activist directors, the increasing presence of mutual funds in unicorn investing, and the long-term consequences of short-term (equity vesting) incentives, are contained in the full summary report below.
Click here to read the full report by Tom Vos (KU Leuven):
Click here to visit the event page.
Click here to access the papers, slides and view the presentations.
Click here to view the highlights video.
Click here to view the interview clips (1)
Click here to view the interview clips (2)
About the European Corporate Governance Institute (ECGI)
The ECGI is an international scientific non-profit association which provides a forum for debate and dialogue focusing on major corporate governance issues and thereby promoting best practice. It is the home for all those with an interest in corporate governance offering membership categories for academics, practitioners, patrons and institutions.
Its primary role is to undertake, commission and disseminate research on corporate governance. Based upon impartial and objective research and the collective knowledge and wisdom of its members, it can advise on the formulation of corporate governance policy and development of best practice. In seeking to achieve the aim of improving corporate governance, ECGI acts as a focal point for academics working on corporate governance in Europe and elsewhere, encouraging the interaction between the different disciplines, such as economics, law, finance and management.
About the IESE Center for Corporate Governance (IESE CCG)
The IESE Center for Corporate Governance aims to advance the theory and practice of corporate governance by promoting evidence based research, fostering an inter-disciplinary discussion among scholars and experts and helping to create a learning context in which chairs of boards, CEOs, board members, investors and senior executives can reflect on and acquire new frameworks and ideas to improve their firms’ governance.
About The Social Trends Institute
The Social Trends Institute (STI) is a non-profit international research center dedicated to fostering understanding of globally significant social trends. To this end, STI brings together some of the world’s leading thinkers, taking an interdisciplinary and international approach. Findings are disseminated through scholarly publications. The individuals and institutions that support STI share a conception of society and the individual that commands a deep respect for the equal dignity of human beings, and for freedom of thought, as well as a strong desire to contribute to social progress and the common good.
About the European Corporate Governance Research Foundation
Through an initiative of the ECGI, The European Corporate Governance Research Foundation was established in 2013 to support the continuing flow of academic research on corporate governance and stewardship for the public good. The Foundation does this by providing financial support to the European Corporate Governance Institute (ECGI) which in turn provides a forum for debate and dialogue focusing on major corporate governance and stewardship issues and thereby promoting best practice. The mission of ECGI is to improve corporate governance and stewardship through independent scientific research and related activities. It is to assist the top academics in the field of corporate governance in bringing their research to the attention of leading practitioners, policymakers and thought leaders by making state of the art knowledge accessible and relevant to them. It is to make high quality research accessible for the public good.