One of the key concerns of delegates at this year’s World Economic Forum was how to cope with globalization. Academics, trade unionists, politicians and general business bigwigs gathered in Davos, Switzerland last month where they spent a good deal of time scratching their heads over how to control and police the world’s markets.
The Asian downturn was top of their minds and, according to the Wall Street Journal, they agreed that globalization had outpaced the financial world’s ability to manage it. Indeed, Richard Haass of the Brookings Institution was even quoted as saying that creating the institutions to handle globalization is the world’s ‘greatest intellectual challenge’. So why hasn’t the corporate governance debate caught up?
In the UK we find the Hampel committee’s final report desperately encouraging institutions to vote their domestic holdings. Indeed, it reports voting levels in the UK of less than 40 percent. Start talking about voting international holdings and most large institutions recoil in horror. For many, non-domestic markets are just too complicated, or holdings too small, to warrant the effort of voting.
Yet look at the world’s markets and you see international institutional holdings creeping up. In this issue alone we touch upon the scale of such holdings in France, Finland and New Zealand. In Register this month, German shareholders’ association DSW points to the ‘alarming’ failure of foreign institutions to vote their holdings in Germany. And sizeable holdings they are too. DSW’s figures indicate around 51 percent of Hoechst being held by foreign institutions last year.
Voting is important because it holds directors to account. Politicians will tell you just how much of an incentive it is to perform. While national bodies are trying to improve voting in domestic markets, the march of globalization means that a supranational approach to international corporate governance is also needed. The International Corporate Governance Network – a global grouping of major institutions – has made some attempts to grapple with the problem but, to date, through no real fault of its own, it has been little more than a talking shop.
In this magazine’s opinion, mandatory voting enforced by each national regulator is not the answer. That would just lead to box-ticking for box-ticking’s sake. Nor would we presume to come up with a workable solution. But taking the problems associated with cross-border governance much more seriously would be a step in the right direction. It’s an intellectual challenge which institutions and companies should rise to. Sooner rather than later.
