CONCLUDING REMARKS AND SUGGESTIONS FOR FURTHER REFLECTION AND RESEARCH
1. IS GLOBALISATION LEADING TO CONVERGENCE OF CORPORATE GOVERNANCE MODELS?
CONCLUDING REMARKS AND SUGGESTIONS FOR
Many believe that the globalisation of shareholder activism will enforce convergence in corporate governance standards. It seems that institutional investors have some fundamental similarities to endorse boards with control and strategic skills, independence, mandatory disclosure of director compensation and some other critical corporate governance aspects.
These developments all occur at the same time and force companies, which seek capital, to comply with international standards regarding disclosure and governance.
This evolution is further enhanced by multiple listings of large corporations.
1.2 However, diversity remains as far as ownership structures are concerned Studying the type of shareholders, we found that convergence is not materialising for the time being. We observed a striking difference in shareholder profiles within so-called insider system countries as well as between these insider and Anglo-American countries. Even within the European Union diversity rules.
But also the Anglo-American outsider system is far from homogeneous. Instead of a convergence within Europe, the ownership structure seems to be diverging further.
However, this divergence could also be interpreted as signalling a quite different speed at which the Continental European listed companies adapt to the Anglo- American style of capitalism. As such this would again mean a global convergence, leading to further divergence within Europe.
Whether ownership structures are converging was also studied from the perspective of ownership concentration. The empirical evidence shows that global convergence does not exist as far as shareholder concentration is concerned. In many Continental European countries companies continued to have a concentrated ownership structure. Control is concentrated in Continental Europe not only because of the predominant influence of the largest shareholder, but also because of the absence of significant blockholdings by other shareholders. Only companies in the U.K. and the U.S. have a "Berle & Means" structure of dispersed control. However, there is still considerable difference between the American and the British structure of corporate control. Numerous U.K. companies are possibly controlled by a coalition of relative equal shareholders. The potential for coalition is significantly larger in the U.K. than in the U.S., because a typical block in the U.K. is twice as large as in the U.S. (10% versus 5%).
Other research has shown that the concentration patterns not only differ from a geographical perspective but from a company perspective as well. The larger the firm's scale the lower the degree to which ownership is concentrated. However, the differences between Continental European countries and the U.K. remain large for each size type. Nevertheless, we think that firm scale is probably an important factor in explaining the different governance models that reign.
We can indeed conclude that diversity remains as far as ownership structures are concerned. Such diversity in shareholder structures seems to be embedded in historically legally and culturally dispersed environments.
1.3 Although formal legal differences remain important, board governance practices are slowly converging
From an international as well as a firm-type perspective, there remain significant legal differences in organising board governance. Notwithstanding the legally quite disperse board structures throughout Europe, the board practice tends to point to a converging trend. However it does not seem to be a convergence into one standard board structure, but instead in the direction of a differentiating structure according to the type of the firm, its scale and its business culture. Our analysis of board structures revealed a complex trend of growing convergence for the larger (global) firms with an outspoken differentiation internationally as well as nationally according to the type of the firm.
Although there is global emphasis on a truly independent board, important differences continue to exist as to how such independence has to be interpreted. The independence of the board in the "insider system" is seen to be instrumental in protecting the firms' interest in general and the interests of minority shareholders (and other stakeholders) in particular. Therefore defining the true meaning of 'independence' will be different than in the outsider system, where independence in relation to management gets the highest priority. Independence stands for creating a true countervailing power and control against the most powerful stakeholder.
Within the board of directors, a number of board committees are established in order to focus on several specific board tasks. This trend was first developed in Anglo-American countries but it is now rapidly spreading throughout all European states.
1.4 The legal environments are probably the best proof of path-dependency diversity
Although some recent converging tendencies are visible, the relevant legal systems, in which corporations have to compete, are truly embedded in local environments. Therefore they are rather different, even for firms that compete on a global base. The most relevant aspects of the legal environment include shareholder rights, protection of financiers in general and minority shareholders more specifically, the market for corporate control and take-over regulations as well as disclosure rules and accounting principles. Research results point to quite substantial differences between so-called common law-countries versus civil law-countries.
More striking however was the revelation that the American model is certainly not proving to be the best practice or benchmark on each of these relevant issues.
1.5 Shareholder versus stakeholder value: the extreme example of diversity or the road to convergence?
Whereas the 'market model', by definition, relies more on market forces, the
"insider system" is more oriented towards the long-term partnership with internal production factors. This also influences the importance of the capital market as a provider of capital funding, as well as the attitude towards labour forces. Indeed, the Anglo-American market model places the shareholder in the prominent place as the 'principal' of the firm. This model gives priority to the realisation of shareholder value being the final goal of the firm as well as the final duty of a company director.
The 'insider' model attaches more importance to the long-term collaboration with shareholders and employees while the market model operates with more flexible and shorter term relationships (e.g. labour contracts, management terms, volatile shareholder structures, etc.).
The question is to what extent the global critique on the pure liberal market will force global convergence to a hybrid version of the stakeholder model. Also institutional investors increasingly opt for a policy of 'Corporate Social Responsibility'. Is the U.K. not taking the lead in this respect?
2. THE CHOICE OF A CORPORATE GOVERNANCE MODEL MATTERS A