The One-Tier Board
Einde inhoudsopgave
The One-Tier Board (IVOR nr. 85) 2012/2.5.10:2.5.10 Role of shareholders: single out long-term shareholders interested in stewardship
The One-Tier Board (IVOR nr. 85) 2012/2.5.10
2.5.10 Role of shareholders: single out long-term shareholders interested in stewardship
Documentgegevens:
Mr. W.J.L. Calkoen, datum 16-02-2012
- Datum
16-02-2012
- Auteur
Mr. W.J.L. Calkoen
- JCDI
JCDI:ADS594924:1
- Vakgebied(en)
Ondernemingsrecht (V)
Deze functie is alleen te gebruiken als je bent ingelogd.
As mentioned at the end of sub-section 2.2.4 above there are many influential voting associations in the UK that promote ideas about better shareholdership. They include the Institutional Shareholders' Committee (ISC), the Association of British Insurers (ABI), the National Association of Pension Funds (NAPF), the Institutional Voting Information Service (NIS), Research Recommendation Electronic Voting (RREV), the Investment Management Association (IMA) and the Association of Investment Companies (AIC).
Then there are not-for-proflt institutions that do research in the area of corporate governance, such as Tomorrow's Company under the leadership of Mark Goyder, which has published some very interesting reports and recommendations. One of them is entitled Tomorrow's Owners,1 which reveals that the average shareholding is now shorter than before and that some new categories of shareholder are playing an increasing role, such as hedge funds and sovereign wealth funds as well as private equity. The report also underlines that these new types of shareholders are outweighed by a factor of ten by the world's pension funds, mutual funds and insurance funds.
In 2007 the split of the world-wide investments was as follows:
private equity US $0.8 trillion;
hedge funds US $2.3 trillion;
sovereign wealth funds US $3.3 trillion;
insurance funds US $20 trillion;
mutual funds US $26 trillion;
pension funds US $28 trillion.
The report continues by providing an overview of all categories of shareholders according to the degree of their "active long-term interest" or "stewardship" in the following order:
The report emphasizes that it is not useful to demonise the lower categories. They belong to what it terras the "casino economy", which is useful and necessary for a stock exchange with good trading volume. The higher categories, together with the enterprises, belong to the "real economy". The report argues that these differences in shareholdership should be accepted and that they are a strong argument for one-on-ones dialogue with shareholders interested in "stewardship". This is also reflected in the UK Corporate Governance Code of 2010: "Chairmen should discuss strategy with major shareholders." The FSA has given guidelines in recognition of one-on-ones: Disclosure Rules (DR) 2.2.10.2
As mentioned earlier Hermes is another interesting institution. Colin Melvin, director of corporate governance of Hermes and chief executive of Hermes Equity Ownership Services Limited (EOS), explains this relationship in describing the work done by EOS:
"The work 1 do is to some extent aimed at taking the intermediaries out of the system, addressing some of these problems and getting a proper conversation going, a dialogue between the owners of the companies, the pension funds, and the companies themselves. We don't manage money for these funds. We don't buy and sell the shares. That's done by other fund managers. What we do is represent them in engagements and discussions with companies, we vote the stock and we have a long-term conversation with companies about longer term strategy and value creation. And it's not about giving companies a hard time, it's not about second guessing or micromanaging them. 1 wouldn't pretend to know how to manage some of the largest companies we engage with. It's about calling to account some of the directors for their performance on behalf of the owners. And that process we very firrnb, believe adds value for the long-term owner and the pension fund."3
On 24 March 2010 Tomorrow's Company4 issued a new report in which it discusses the Swedish practice of appointing two or three shareholder representatives, elected by shareholders, who do not become members of the board but are voted in as members of the nominations committee. Tomorrow's Company argues that it might be a good idea for the UK as well to allow shareholders to appoint one or two outside members to the nominations committee. Apart from the advantage of involving shareholders in the process of nominating directors, it would also have the advantage of creating more scope for dialogue about strategy between representatives of shareholders and the board, which is a specific UK aim,5 whereas it is less of a goal in common practice in the US and the Netherlands.6