MIA – U.S. shareholders who care
Who knew Swedish finance could be so sexy? The late, great Stieg Larsson’s best-selling The Girl with the Dragon Tattoo — the Hollywood version hit North American theaters this week — was the first to tap into a hitherto undiscovered global fascination with Nordic number crunching.
Following gingerly in his footsteps, I’d like to report on a fascinating discussion at the Securities and Exchange Commission in Washington this month, where the Scandinavian story was center stage.
The conference, where I moderated a panel, was organized by the European Corporate Governance Institute and Columbia Law School. The theme was the involvement of shareholders in the companies they own.
Americans like to think of themselves as the world’s archcapitalists, especially compared to Europeans, whose fondness for a social safety net often earns the label, applied on this side of the Atlantic as an insult, of ”socialist.” That’s why the message from many of the speakers at the SEC discussion, particularly the visitors from Europe, would come as a surprise on Main Street, USA.
The United States, they argued, has created a system of capitalism without capitalists, of private sector companies whose owners have abdicated responsibility for the companies that belong to them.
“In the U.S., you can more or less do whatever you want, without having the support of the owners,” Mats Andersson, the chief executive officer of the Fourth Swedish National Pension Fund and a speaker at the conference, told me in an interview afterwards. “Because of the composition of the boards in Sweden, the company’s big decisions all have to be based on a mandate or the support of the owners.”
”Who is actually responsible for executive remuneration in U.S. companies?” Andersson said. ”If I could decide on my own salary, I would certainly love that system.”
In Andersson’s view, greater shareholder involvement is good both because it is right and because it works. ”If you put your money at risk, you should have influence,” he said. ”Capitalism without owners doesn’t work.”
Andersson’s biggest worry about companies without engaged owners is that they fall victim to the tyranny of short-term stock-market expectations or the self-interest of their executives, rather than building for the future.
”We are long-term investors. The point is to increase our returns, so we need to be active and engaged,” Andersson told me. ”The next quarter is pretty much irrelevant. We are interested in building a good company that will perform long term.”
Andersson isn’t alone. Earlier this year, Dominic Barton, global managing director of McKinsey, the management consultancy, got the business world talking with an essay in the Harvard Business Review titled ‘‘Capitalism for the Long Term.”
Barton’s point was that the current sickness of global capitalism wasn’t some passing infection, caused by the financial crisis and susceptible to a natural cure. Instead, he argued, capitalism, especially in the West, needed a ”deep reform” that would shift it from ”quarterly capitalism” to ”long-term capitalism.” One of the culprits Barton identified was ”the ills stemming from dispersed and disengaged ownership.”
A Canadian who now lives in London, Barton has spent much of his career working in Asia — in fact, he was in India when I reached him on a fuzzy cellphone line this week. He told me that one of the most striking differences he has observed between the rising economies of Asia and of other emerging markets like Brazil compared to the United States is their owner-dominated long- term capitalism, versus the quarterly capitalism of the United States, with its widely held public companies.
”Thinking about where the company should be in 10 or 12 years, these are not the discussions held in many widely held companies,” Barton said.
The irony is that directly engaged owners are the men who made American capitalism great and who remain responsible for its most outstanding companies. In his 1890 masterwork, Principles of Economics, Alfred Marshall, the seminal English economist, bemoaned the feebleness of the staid British joint-stock company, compared to an America dominated by owner-entrepreneurs: ”The area of America is so large and its condition so changeful, that the slow and steady going management of a great joint-stock company on the English plan is at a disadvantage in competition with the vigorous and original scheming, the rapid and resolute force of a small group of wealthy capitalists, who are willing and able to apply their own resources in great undertakings.”
More than a century later, the American companies the world most admires — Google, Amazon, Apple, Facebook — are the creations of that same breed of rapid and resolute founding owners.
Things get more complicated when companies go public and the founder retires or moves up to St. Peter’s boardroom. Many European countries, including Sweden, get around that problem by keeping things in the family, with the founders’ descendants retaining a significant ownership stake and voice in the family firm.
That tradition doesn’t sit so well with Americans, whose country was, after all, created in part in rejection of the hereditary principle.
”Why do U.S. families retreat from corporate control? They don’t seem to be very dynastic,” Marco Becht, a professor, the executive director of the European Corporate Governance Institute and one of the organizers of the SEC. conference, mused to me when I called to discuss the issue. ”If people care so much about having owners who care about the company, maybe the U.S. and the U.K. have the wrong type of owners,” he said. ”The logical conclusion is if you want long-term owners who care, you have to bring back the families.”