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Improving the relationship between directors and shareholders Part A: The Context of Shareholding in Europe Dr. Roger Barker Director of Corporate Governance,

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Presentation on theme: "Improving the relationship between directors and shareholders Part A: The Context of Shareholding in Europe Dr. Roger Barker Director of Corporate Governance,"— Presentation transcript:

1 Improving the relationship between directors and shareholders Part A: The Context of Shareholding in Europe Dr. Roger Barker Director of Corporate Governance, Institute of Directors (UK) Senior Advisor to the Board of ecoDa

2 2 The structure of company ownership in Europe  The Berle and Means vision of dispersed shareholdings offers a good description of listed corporations in the United States and the UK  It was assumed that it was a common feature of economic development in all countries…but new evidence emerged in the 1990s  Initial work on ownership structure of listed European companies undertaken by Franks and Mayer (1995)…it turns out that shareholdings in continental Europe are often not widely dispersed!  These results confirmed by more detailed studies: e.g. La Porta et al (1997; 1999); Barca and Becht (2001); Faccio and Lang (2002)  Ownership structure has significant implications for the relationship between shareholders and directors – foreign ownership is also expanding rapidly in most European markets

3 3 Implications of concentrated ownership for board-shareholder relations  The presence of controlling shareholders may reduce the willingness of institutional investors, foreign investors and other minority shareholders to invest or engage with companies  Minority shareholders may feel vulnerable when investing alongside a controlling shareholder – even with investor protections, there is a significant asymmetry of power  The board of directors may have little effective power  May be less emphasis on corporate transparency However:  Controlling shareholders may be more willing to adopt a longer-term outlook than institutional investors – they can insulate the management from stock price fluctuations and economic cycles  Management is directly monitored by the owner of the company. Less scope for CEOs to pursue private agendas, e.g. in terms of executive remuneration, takeovers, empire-building, etc. In contrast, institutional investors may be less engaged.

4 4 Data on European Share Ownership

5 5 Typical widely-held UK companies and their largest shareholders  Royal Dutch Shell (Blackrock: 6.6%; Legal & General: 4.2%). Market Cap - $228 bn.  GlaxoSmithKline (Blackrock: 5.6%; Legal & General: 3.7%). Market cap - $98.6 bn.  Vodafone (Blackrock: 6.0%; Legal & General: 3.6%). Market cap - $145.9 bn.  BP (Blackrock: 5.9%; Legal & General: 4.2%). Market cap - $ bn.  HSBC (Blackrock: 6.6%; Legal & General: 4.0%). Market cap - $181.9 bn. All other shareholders own less than 3%

6 6 Typical European companies with significant shareholders Roche Holdings (just over 50% owned by descendents of Hoffmann and Oeri families. Novartis owns a further one third.) Market cap - $226 bn. VW (Piëch and Porsche families control more than 53%, State of Lower Saxony 20%, Qatar Holding 17%). Market cap - €78.3 bn BMW (Quandt family own around 47%). Market cap - €53 bn. L’Oréal (Bettencourt family and Nestlé each control around a quarter of the company and vote as a block). Market cap - €77.3 bn Inditex (controlled by Amancio Ortega). Market cap – €70.0 bn Investor AB has major stakes in ABB (7%), Electrolux (29.9%), Ericsson (19.3%), Saab (39.5%) and SEB (20.9%), and is controlled by the Wallenberg family ENI (Italian state has 30.3% golden share). Market cap - €65 bn ArcelorMittal (Mittal family owns 40%). Market cap - $23.2 bn. Sanofi (L’Oréal: 15.6%; Total: 8.9%). Market cap - €100.6 bn Hennes & Mauritz (Controlled by Persson family). Market cap - $59.7 bn Gazprom (50.002% owned by Russian state). Market cap - $108.1 bn Source of market cap data: FT website, as of September 2013

7 7 Company ownership in Europe

8 Telecom Italia Source: Enriques and Volpin (2007: 121)

9 Source: Federation of European Securities Exchanges (2008:16) Percentage of listed companies owned by institutional investors, (i.e. domestic pension funds, insurance companies, mutual funds and other collective financial investment companies)

10 Source: Federation of European Securities Exchanges (2008:20) Percentage of listed companies owned through cross- shareholdings of other non-financial companies

11 Source: Federation of European Securities Exchanges (2008:18) Percentage of listed companies owned by banks and savings banks

12 Source: Federation of European Securities Exchanges (2008:23) Percentage of listed companies owned by the state

13 Source: Federation of European Securities Exchanges (2008:13) Percentage of listed companies owned by foreign shareholders

14 Sovereign Wealth Funds – increasing stakes in European companies Rio Tinto (12% stake from the Aluminium Corporation of China) Lagardère (Qatar Holding took 10.1% stake in 2011; Arnaud Lagardère holds 14% of voting shares) Barclays (Qatar Holding took 6.8% stake in 2008, and holds warrants for a further 3.2%; Nexus Capital Investing (Abu Dhabi) holds 6.3%) UBS (Government of Singapore: 6.45%) Crédit Suisse (Olayan Group (Saudi Arabia) holds 6.6% and State of Qatar holds 6.2%) Volkswagen (State of Qatar: 17%)


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