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But which owners to answer to?
While the RSA is looking at the role of individuals as shareholders and there role in the corporate system, one veteran governance campaigner has warned that changes in the nature of the ownership of companies are having a significant impact on corporate governance. In his recent Charkham Memorial Lecture, Ira Millstein explored the challenges that new developments in the capital markets posed for both companies and investors.
“[T]his situation puts the model which was envisioned in the 1980s and 1990s under severe strain. At the time, institutional shareholders were presumed to share a common goal when exerting pressures on boards to monitor management and effectively guide firm strategy. That assumed homogeneity now seems dead, and the heterogeneity is ever increasing. Terms like “hedge funds,” “sovereign wealth funds,” and “private equity,” among others, have a variety of permutations, and each permutation has its own species. This diversity of shareowners has brought a whole host of agendas and values to the table,” he said.
Millstein pointed out that such changes in ownership caused problems for company directors seeking to acting in shareholders’ interest, since shareholders no longer formed an homogenous group with shared objectives and timescales. He warned that, faced with divergent views from different types of investors, boards may simply abandon trying to play the agency role effectively.
