long-term shareholders’ engagement. what is a long-term shareholder? sustainabilty = very long...
TRANSCRIPT
Long-term shareholders’ engagement
What is a long-term shareholder?
Sustainabilty = very long term, over generations • e.g. family business ownership• Importance of succession planning: deserves much
more governance attention, given huge fall-out percentages!
Other extreme• High frequency trading, Day-trading• No owners nor shareHOLDERS• No engagement whatsoever• Economic role and value-added?
Many shades in-between with different time horizons• e.g. private equity, individual, institutional shareholders
What is Engagement?
Insider model
• Very strong engagement and monitoring role• Shareholder on the board (owner, industrial shareholder,
financial shareholder)
• Sometimes also ‘represented’ in management (families, private equity)
• But also challenges• Private benefits, related-parties transactions & (potential
for) abuse of power
Necessitates ...
• Additional attention for the role of independent directors (nomination point of attention in insider model)
• Additional attention needed for respecting minority rights
What is Engagement?
Outsider model, with many nuances• Dispersed shareholder model
• (Very) limited impact of shareholders: issue of free riding
• Institutional capital: a complex investment chain with numerous parties involved: how to make them responsible for engagement and monitoring ?
• Blockholding (by institutional investors=outsiders)• More monitoring potential
But difficulties
• Engagement depends upon the investment policy (relevance for index fund?)
• Collective action not straightforward: cost-benefit and potential competition
• Acting in concert rules may be prohibitive
• Are solvency regulations still compatible with important investments in equity capital?
