Thursday, 24 May 2018

Report from the “Shareholder Engagement in the EU” Conference in Brussels, Belgium

Today the author attended the “Shareholder Engagement in the EU” Conference in the European Parliament building in Brussels, Belgium. The conference was developed as part of a massive research project funded and ‘hosted’ by Aarhus University, though it has spread across the continent. Whilst this post will not go into detail on every talk in the conference today, certain aspects of the talks will be used to discuss the overarching and extremely important issue of ‘shareholder engagement’. There were a number of influential contributors at today’s event so those not included in today’s post are only excluded for the purpose of brevity, and nothing else. The event was a fascinating event in that it brought together a really good mix of scholars who specialise in the area, as well as practitioners who are being affected by regulatory developments; the details of the event can be found here.

The conference was concerned with a number of aspects relating to shareholder engagement, but the focus of the conference was on the EU’s Shareholder Rights Directive and its associated effects. The speakers at the event are far more informed on this matter than the author, but in relation to the issue a number of aspects come to mind. It seems, after listening to the differing perspectives presented on the topic, that the Directive is contentious, but only from within the parameters of one’s viewpoint on the ordering of the marketplace (as usual). On one side of the debate is the viewpoint that encouraging shareholders/investors to play a more active role in the governance of a company is a worthy endeavour and can be achieved by providing a defined framework from within which such activism can occur. However, the related issues such as the so-called ‘Corporate Governance Statements’, for example, (the author will have an article published on this very topic shortly) lend themselves to the idea that providing more information to the investment sphere will result in increased engagement – the sentiment being that shareholder engagement has been lacking over the absence of the right type of information. Yet, one issue that stems from this is that whilst the aim is on increasing investor engagement in relation to the companies they are investing in, in reality the aim is to encourage a systemic shift in attitude, all of which will be dependent upon the investors. The point was made today in the conference that, quite often, investors are only interested in one thing: returns. A good point was made by Professor Todd Henderson in his closing remarks that if the average ‘saver’ wants to act in a ‘sustainable’ way (he also made the great point that it is important not to merge the concepts of “sustainability” and other factors such as “ESG”), then they will likely take personal action like buy an electric or a hybrid car rather than a diesel or petrol-powered vehicle – engaging in investment practice is rarely the concern of the average ‘saver’. This sentiment with regards to the position of the investors does indeed raise a number of concerns, but Professor Henderson continued by raising the point that enforcing public companies to abide by certain codes may have the effect of pushing the majority of companies to go private so as to allude the costly compliance with those associated codes – he referenced the effect in the US of the same concept, which has witnessed a dramatic reduction in public companies since the enactment of a number of similar codes.


Ultimately, there is still plenty of work to be done in this area. Whilst the aim is not to please everyone (as that is clearly unobtainable), it was fascinating to see the divide within the conference, between those believing in the power of rules to dictate the direction of the market (whether hard or soft), and those who believed in the power of the marketplace to determine its own future. This is, of course, an age old delineation that only gets stronger with time, but one aspect was clear from the conference, and that is that investors and the dynamics that define that concept are absolutely key to the development of the marketplace, either way. There were a number of suggestions put forward in relation to resolving the issue of shareholder engagement, but it was difficult to overlook the fact that these issues are, perhaps, fundamental to the system we inhabit. The concept of the dispersed investor is, when considered enough, at the root of almost every financial issue in the modern age; if a company incorporates short-termism, it is often to placate dispersed investors who majoritively focus on returns. If a company’s management wants to take a longer-term view, it is often hampered by concerns over whether the plan will be palatable to those same investors. This viewpoint places a lot of emphasis upon the ‘dispersed investor’, and in truth this author does not necessarily follow that school of thought. Rather, it is more likely that this concept of the ‘dispersed investor’ is a very handy concept as it is unseen, and can be used to cover up a range of inadequacies (and that is a very polite term). Other entities must shoulder a lot of the blame of the development of this ‘culture’ we see today, including politicians, certain schools of scholarly thought, and perhaps most obviously the media – the media is remarkably adept at playing on this notion of a ‘crisis’ within a firm at any given moment, and its ‘effect’ upon shareholders. On that basis, whole industries are formed to continue that narrative, when in reality the actual viewpoints of those putting money into this massive machine – let us use the example of a pension holder in a large firm – are rarely analysed, considered, discussed, or advanced in common debates. The optimism from some of the contributors today was really good to see, and will no doubt provide impetus for change within the sector. However, that optimism is not shared by this author, who views these machinations as purely cyclical, upon which there will be future crises on the back of this concept of ‘shareholder engagement’ – the system demands it.

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