2Outline European relationships based approaches The role of equity marketsPolitical and legal structures contrasts of EuropeThe transformation of the industrial and governance systems of Germany, France and ItalyFailures in European corporate governanceReforms: institutions and practicesThe increasingly international role of Europe
3European vs Anglo-Saxon European Corporate Governance:Emphasis on co-operative relationships and reaching consensusAnglo-Saxon Corporate Governance:Emphasis on competition and market
4Two typical Models of Different Capitalist Cultures OUTSIDER MODEL(e.g. UK)INSIDER MODEL(e.g. Netherlands)Market CultureConsensus cultureMarket OrientatedNetwork orientatedRelatively more Reliance on EquityRelatively more Reliance on DebtStock Exchange Relatively LargeStock Exchange Relatively SmallRelatively less influence of controlling sharerholdersRelatively more influence of controlling shareholdersSource: Welt, Gotshat and Manges (2002). Eurosif Research 2007
5Dynamic View of Share Ownership in Europe PERFORMANCERESPONSIBILITIESPOLICYPROCESSESRESEARCHACTIVITIESIMPACTSDRIVERSBACKGROUNDANALYSISUSE OF SHAREHOLDERSRIGHTSOUTCOMESSource: Eurosif Research 2007
6European Relationships Based Approach Broader representation of interests on the board of directors,More diverse groups of stakeholders are actively recognizedLong-term large shareholdersSupervisory board for oversight of managementBanks play an active roleinter-corporate shareholdings are widespread, and often companies have close ties to political elites.
7Distribution of Share Ownership in German Publicly Traded Companies 19931994199519961997199819992000200120022003Banks12.812.112.913.413.312.013.011.510.99.0Insurance126.96.36.199.188.8.131.52.313.2Other Financial6.0Households19.919.418.818.418.117.516.916.514.413.9Non financial companies42.845.245.844.040.040.134.936.236.832.932.5Government2.01.81.30.184.108.40.206Foreign10.09.110.111.814.012.514.114.817.1Source: Vitols (2005).
8Weight of Pension Funds in the Economy and Financial Markets (2001) Source: EUROSIF Active Share Ownership in Europe: 2006 European Handbook
9Internationalization of Pension Equity Investments End 2006 Source: Eurosif research 2007
10Recent Flurry of CG Codes in Europe 20052004200320022001200019991998PreFranceSpainNetherlandsUKBelgiumGermanyItalyIrelandOECDICGNPortugalDenmarkGermany IGermany IIGreeceSwedenAustriaSwitzerland ISwitzerland IIFinlandNorwaySource: EUROSIF “Active Share Ownership in Europe: 2006 European Handbook” .p 19
11Laws and Codes Encouraging Active Share Ownership in Europe 2000200120022003200420052010UK SIPSwedenAP RulesSwissPensionsLawExtensionISC CombinedCode UKItalyPensionReform & SIPSpanishReformMandatoryProxyVotingLaws?UK Myner’sReviewGerman SIPNL TabaksblattCodeAustria SIPBelgium SIPEU-wideSIPs?Source: EUROSIF “Active Share Ownership in Europe: 2007 European Handbook”
12Insiders control of a company Majority ownership of voting shares2) Owning significant minority holdings and employing acombination of devices to increase their control through:Arranging pyramid corporate structuresShareholder agreementsDiscriminatory voting rightsProcedures intended to reduce the participation or influence of other minority investors.Pyramid structures
13Different Political, Legal, and Regulatory Structures Company lawEmployee representationStakeholders, shareholdersBoard structureSupervisory body independence and leadershipBoard committeesDisclosure
14Multiple Corporate Governance Reform Processes in Europe Vienot ReportMemberships, Powers andOperations of the Boards1995FRANCE2nd Vienot ReportSeparation of Powers ofthe Chairman and CEOAnd disclosure of executiveRemuneration 1999ReviewFindingsBoards ReportGovernance of the EnterpriseMultiple Corporate Governance Reform Processes in EuropePreda ReportCode of ConductDraghi ReformPrinciples of CorrectAdministration1998ITALYSPAINThe Olivencia ReportCode of Ethics1998The Aldama ReportTransparency and Securityin the Markets 2003Corporate GovernancePrinciplesInternational Best Practices 2004Source: Clarke T., (2006)UTS Centre for Corporate GovernanceReviewUK Cadbury Report1992DENMARKFindingsThe Norbis Committee ReportRecommendations as supplementto existing laws 2001Corporate GovernanceReport in DenmarkOECD Principles ofCorporate GovernanceGERMANYAUSTRIAAustrian Code of CorporateGovernanceFramework on shareholder,Board, transparency andAuditing 2002The Baums ReportsRecommendations that reflectchanges in Corporate Law2001The Cromme CodeRegulationSWITZERLANDSWEEDENNORWEGIASwiss Code of Best PracticeRecommendations 2002Swedish Code of Best PracticeReport of the Code Group 2002Norwegian Corporate GovernanceCode of Practice 2004NETHERLANDSEUROPEAN UNIONBELGIUMDutch Corporate Governance CodePrinciples and Best PracticeProvision 2003European Commission ModernisingCompany Law and EnhancingCorporate Governance 2003Belgian Code on Corporate GovernancePrinciples to support long-termvalue creation 2004
15The Dual System: Segregation of Duties Board ofManagementBoMSupervisoryBoardSBAGMCompany ManagementJoint accountabilityChair of Board coordinationCompany oversightSupervision ofChair of SupervisoryBoard coordinationCONTROLof SBand BoMi.e.Information, recommendationsto SBPreparation of SB meetingsCorporate GovernanceElection/ remuneration ofBusiness monitoring/ RMSApproval of :1. Business plan2.Defined transactions3.Annual finalized statementsProposal of auditorsElection of S-RDischarge of acts of SB andAppointment of AuditorsAppropriation of net incomeApproval of capital increaseSource: Joachim Heins-Bunde (2006)
16The Dual system : Representation of Employees and Shareholders Supervisory BoardShareholder RepresentativeEmployee RepresentativeIndependent outside expertSocial Councilmembers(blue collar)UNIONrepsManagement Rep(white collar)Chair of Supervisory Board with casting vote in stalemate situationVice Chair Supervisory BoardElected by AGM (5 years)Elected by Employees( 5 years)Source: Joachim Heins-Bunde (2006)
17Activities of Supervisory Board Audit Committee3-4 times/ yearüFinancial statements/reportingRMSSOXAuditors:1. Independence2. Nomination proposals3. FeesPersonnel CommitteeRemunerationContractsNominationsStrategy Committee12 times/ yearCorporate StrategyBU strategiesKey projectsTechnology CommitteeR&D prioritiesNBDInternalAuditorExternalAuditors•Audit programFinancial statementsKey resultsPre meetingsWith ShareholdersRepresentativesPlenary Sessions1 times / year1 site visitDiscussion/ meetingsChair of Supervisory Board–Chair Board of ManagementWith EmployeeSource: Joachim Heins-Bunde (2006)
18ParmalatSource: Compiled from Milan Stock Exchange, Yahoo Finance, various media news sources.
19Ahold Share Price Collapse Source: Compiled from Yahoo Finance (2006), various media news sources.
20What Shareholders' Democracy? * Companies in the FTS Eurofirst 300 IndexSource: Association of British Insurers: Deminor Rating
21Dividends Number of Employees and Personnel Expenditure per Employee Source: Beyer and Hassel (2001)
22The Distribution of net value added in large German firms, 1992-4 and 1996-8 LabourCreditorsGovernmentDividendsRetained earnings1992-4220.127.116.11.02.21996-818.104.22.168.87.8Change in %-81-20.4+30.8+40.0+254.5Source: Beyer J. and Hassel Anke (2001 : 320)
23Penetration of Active Share Ownership in Some European Countries STATE OF LOCAL ACTIVISMCOUNTRIESEstablished market culture for institutional Investors and many fund managersIreland, UKDriven by a limited number of (but nonetheless powerful) activist playersDenmark, Netherlands, Sweden, Switzerland (Pension funds or institutional investors)Austria, France, Germany, Italy(Research organisations or fund managers)Greece(Institutional investors)Driven by strong small shareholder associationsDenmark, France, Germany, NetherlandsRather non-existentOther countriesSources: Deutsche Bank Corporate Governance Research, TUAC, Eurosif,
24Responsible Investment Evolution: Growth of ‘ESG’ IntegrationIntegration:UK, NL, FREnvironmentalSocialGovernanceEthicalEngagementEngagement Overlay:UK, NL, BESustainable Development Funds :France & BelgiumBest of class approachEnvironmental Funds :Germany, Northern Europe, SwitzerlandEnvironmental criteriasScreening and best of class approachSocially responsible funds :USA, Canada, UK, Switzerland,Northern Europe1928198020061970Screening criteriasEthical Funds :USAEurope1990Source: Eurosif Research 2007
25ConclusionsThe distinctiveness of Europe has produced some of the most valued corporations in the world, together with an exceptional quality of life in many communities.Though Europe has embarked on a process of change in corporate governance and company law in recent years to integrate better into international financial and product markets, there are important signs that the commitment to social democracy will survive this experience.