Patricia Charléty, Professor at ESSEC Business School started out by asking the question whether shareholders might have some responsibilities to society. She then outlined what effective power depends on in practice. First of all, shareholder power depends on regulations, which vary from country to country, such as conditions to exercise voting rights, the possibility to propose resolutions, and different types of resolutions. Second, their power depends on the ownership structure, and on the type of investor. She underlined that there are two ways of exercising power, behind the scenes through private engagement with the management and the board, or in public via the media and resolutions. Interestingly, there are very few resolutions that are rejected in voting in the French case (2.3 percent). This means even though the shareholders have the power of voting, they do not use it to reject many resolutions. Why is that? Patricia put forth two hypotheses. Either shareholders vote yes because they are not informed, or the shareholders’ opinions are already included in the resolutions before putting them to vote. Patricia concluded that even though many shareholders are passive, active shareholders have more legal power than ever before. We should thus pose the question if shareholders should be made more accountable. “What did they do during the crisis for instance?”, Patricia asked, “and should we recommend voting for some shareholder taking the risks that shareholders might not be well informed.
Hector LEHUEDÉ, Senior Policy Analyst at the OECD reminded us of the initial starting point of the parallel session, which is the following: As residual claimants, shareholders need to have some control over companies to insure they receive a return on investment. Based on this statement, Hector raised two questions: “But how much control do shareholders and have and how much do they want?” First of all, voting at AGMs (annual general meetings) is heavily influenced by proxy solicitation. The dissent from company proposals is negligible (from 5% to 1%). Hector stressed that the most relevant input shareholders can have is the appointment of the board. The problem is that shareholders don’t have much choice as some candidates are presented all over again and only a limited number of candidates are proposed. He then presented a recent OECD study on shareholders’ participation in board nomination and election. Hector affirmed that contested elections are exceptional and in any case dominant shareholders often make the contesting process pointless. The study showed that cumulative voting is often permitted but not widely used, as it requires shareholder cooperation, which is rare. As a matter of fact, the global landscape for corporate governance is changing fast. Various developments, such as indexing or shorter holding periods, point to challenges for meaningful shareholder engagement with investee companies. So, what are today’s challenges in relation to our understanding of corporate governance? What is new? Hector mentioned a multitude of current developments, which testify to the growing importance of shareholders. Institutional investors now own more than 50% of the equity markets of OECD countries, and 70% of free float, and their share in global equity markets has been constantly growing since the 1990s. In the light of these developments, Hector concluded, the rights and responsibilities of shareholders might need rethinking.
Bernard ICARD, Head of Equity Proprietary Investment at the Caisse des Dépots et Consignations is in charge of the asset owner side for single stocks only based on Europe. At the Caisse des Dépôts the minimum investment is 3 to 5 years with the purpose to generate capital gain to finance long-term projects linked to hospitals, infrastructure etc. His speech focussed on their relationship with the companies. Bernard informed that they vote on every company without using proxies that only serve for information. Interestingly, their requests go beyond mere financial issues and also include questions such as the transformation of the company, transparency etc. He stated his conviction that participation in the dialogue with the company is essential. In fact, they participate in a number of shareholder meetings. The advisory committee reviews all the difficulties that they might have on responding to resolutions and it has a say on what they propose, Bernard explained. Their engagement policy is really strong. He emphasized that access to top management is crucial to pass on their ideas. These private meetings have the objective of achieving a broader scope of responsible and sustainable governance. Requesting transparency does not take any power away from the board of directors. For this reason, Bernard claims that we should promote this type of engagement with the companies, also to integrate shareholders’ values. In the end, the pressure of investors could push companies into more transparency.
So, what shall we conclude from all these interesting contributions? In the last years, the concept of corporate social responsibility has become more and more prominent. Business, politics, and researchers start thinking about their responsibility to society, and companies have taken a lot of initiatives in this respect. Discussions on what the concept of stakeholders shall include and whom companies should be responsible to sometimes masks the problem of whose responsibility we are talking about. A company, as we know is a complex entity, in which shareholder increasingly take on an important role. This is why the fact of shareholders’ growing role in the corporations and questions on the mutual responsibility of companies to shareholders and vice versa is crucial in understanding the whole idea of responsibility. Also, companies need to be clear about their overall philosophy to group shareholders around this philosophy. In the end, companies can only be sustainable, I’d say, if they are both accountable to their shareholders, with shareholders being active and responsible at the same time, and if they act in a responsible way considering their impact on society – the society they are living in. At the ESSEC Leadership and Diversity Chair we are looking into the role of diversity in bringing about innovation and ultimately sustainable firm performance. The growing diversity of shareholders and of those having a say in the decision-making of a company might in the same way lead to a more sustainable corporate governance.