Improving the relationship between directors
and
shareholders
Part A: The Context of Shareholding in Europe
Dr. Roger Barker
Director of Corporate Governance, Institute of Directors (UK)
Senior Advisor to the Board of ecoDa
roger.barker@iod.com
The structure of company ownership in
Europe
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The Berle and Means vision of dispersed shareholdings offers a
good description of listed corporations in the United States
and the UK
It was assumed that it was a common feature of economic
development in all countries…but new evidence emerged in
the 1990s
Initial work on ownership structure of listed European
companies undertaken by Franks and Mayer (1995)…it turns
out that shareholdings in continental Europe are often not
widely dispersed!
These results confirmed by more detailed studies: e.g. La Porta
et al (1997; 1999); Barca and Becht (2001); Faccio and Lang
(2002)
Ownership structure has significant implications for the
relationship between shareholders and directors – foreign
ownership is also expanding rapidly in most European markets
2
Implications of concentrated ownership
for board-shareholder relations
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The presence of controlling shareholders may reduce the willingness
of institutional investors, foreign investors and other minority
shareholders to invest or engage with companies
Minority shareholders may feel vulnerable when investing alongside a
controlling shareholder – even with investor protections, there is a
significant asymmetry of power
The board of directors may have little effective power
May be less emphasis on corporate transparency
However:

Controlling shareholders may be more willing to adopt a longer-term
outlook than institutional investors – they can insulate the
management from stock price fluctuations and economic cycles
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Management is directly monitored by the owner of the company. Less
scope for CEOs to pursue private agendas, e.g. in terms of executive
remuneration, takeovers, empire-building, etc. In contrast,
institutional investors may be less engaged.
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Data on European Share Ownership
4
Typical widely-held UK companies and
their largest shareholders
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Royal Dutch Shell (Blackrock: 6.6%; Legal & General: 4.2%).
Market Cap - $228 bn.
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GlaxoSmithKline (Blackrock: 5.6%; Legal & General: 3.7%).
Market cap - $98.6 bn.
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Vodafone (Blackrock: 6.0%; Legal & General: 3.6%). Market cap $145.9 bn.
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BP (Blackrock: 5.9%; Legal & General: 4.2%). Market cap - $ 136.8
bn.
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HSBC (Blackrock: 6.6%; Legal & General: 4.0%). Market cap $181.9 bn.
All other shareholders own less than 3%
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Typical European companies with significant
shareholders
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Roche Holdings (just over 50% owned by descendents of Hoffmann and Oeri
families. Novartis owns a further one third.) Market cap - $226 bn.
VW (Piëch and Porsche families control more than 53%, State of Lower Saxony
20%, Qatar Holding 17%). Market cap - €78.3 bn
BMW (Quandt family own around 47%). Market cap - €53 bn.
L’Oréal (Bettencourt family and Nestlé each control around a quarter of the
company and vote as a block). Market cap - €77.3 bn
Inditex (controlled by Amancio Ortega). Market cap – €70.0 bn
Investor AB has major stakes in ABB (7%), Electrolux (29.9%), Ericsson (19.3%),
Saab (39.5%) and SEB (20.9%), and is controlled by the Wallenberg family
ENI (Italian state has 30.3% golden share). Market cap - €65 bn
ArcelorMittal (Mittal family owns 40%). Market cap - $23.2 bn.
Sanofi (L’Oréal: 15.6%; Total: 8.9%). Market cap - €100.6 bn
Hennes & Mauritz (Controlled by Persson family). Market cap - $59.7 bn
Gazprom (50.002% owned by Russian state). Market cap - $108.1 bn
Source of market cap data: FT website, as of September 2013
6
Ownership concentration:mid/late-1990s
Percentage of listed companies with blockholder (>20%)
Company ownership in Europe
Greece
France
Germany
Portugal
Italy
Spain
Austria
Belgium
Finl and
Switzerland
Sweden
Norway
Den mark
Ireland
United Kingdom
Netherlands
United Stat es
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
780.0
Source: Enriques and
Volpin (2007: 121)
Telecom Italia
Percentage of listed companies owned by institutional investors, (i.e.
domestic pension funds, insurance companies, mutual funds and other
collective financial investment companies)
Source: Federation of European Securities Exchanges (2008:16)
Percentage of listed companies owned through crossshareholdings of other non-financial companies
Source: Federation of European Securities Exchanges (2008:20)
Percentage of listed companies owned by banks and savings banks
Source: Federation of European Securities Exchanges (2008:18)
Percentage of listed companies owned by the state
Source: Federation of European Securities Exchanges (2008:23)
Percentage of listed companies owned by foreign shareholders
Source: Federation of European Securities Exchanges (2008:13)
Sovereign Wealth Funds – increasing stakes in
European companies
• Rio Tinto (12% stake from the Aluminium Corporation of China)
• Lagardère (Qatar Holding took 10.1% stake in 2011; Arnaud
Lagardère holds 14% of voting shares)
• Barclays (Qatar Holding took 6.8% stake in 2008, and holds
warrants for a further 3.2%; Nexus Capital Investing (Abu Dhabi)
holds 6.3%)
• UBS (Government of Singapore: 6.45%)
• Crédit Suisse (Olayan Group (Saudi Arabia) holds 6.6% and State
of Qatar holds 6.2%)
• Volkswagen (State of Qatar: 17%)