Beyond theShareholder Model of

Corporate GovernanceSue Konzelmann

Marc Fovargue-DaviesGerman Heufemann

Paula Ramos Sanchez

2008 SASE Meetings, San Jose, Costa Rica

Session Overview• Beyond the Shareholder Model• The London Centre for Corporate

Governance and Ethics (LCCGE)• Unfolding cases

– State Owned Enterprises in Chile – Global responses to the Burmese

conflict• Wrap-up & Discussion

The dominant model• External forms of governance & the

strengthening of shareholder protection– Global proliferation of voluntary codes– The market for corporate control & the

marginalization of mechanisms for voice

• Internal forms of governance & stakeholder relationships

• Potential conflicts in approach

Beyond the Shareholder Model …• Corporate governance & management

– The logic of production: Co-operation– The management of production– The centrality of commitment

• Unitary vs pluralistic organizations– Legitimacy of mutual & conflicting

interests

Corporate governance & organizational performance• Corporate governance & stakeholder

relations– Dominant stakeholders: external v

internal• Is there a ‘CG constraint’ on

management in the shareholder model?• Prioritizing shareholder interests &

long-term organizational performance

Summary

• The conflicting logic of markets & the management of production– The logic of the market in corporate governance– Corporate governance & the logic of production– Resolving the conflict

• Conflicting theories of governance• Complementarity of production & trade• Agenda for Reform

– Protecting vulnerable stakeholders– Globalization & effective regulation

A New Approach:The London Centre for

Corporate Governance and Ethics

Marc Fovargue-Davies2008 SASE Meetings, San José, Costa Rica

Origins of the LCCGE

• Is there really a need for another research centre?

• Who proposed the idea?– Birkbeck PG & PhD students/graduates in CG&BE– commitment to organizational effectiveness &

academic development – Diversity of nationality & background

• Key aim of LCCGE– To provide a forum for cutting edge academic

research and the development of practical approaches to new & developing governance challenges

LCCGE Approach• A global network

– A global environment requires a governance framework to operate on a scale to match

• An organic network, with a collective approach and a view to providing a more stable future, is quicker to develop, more adaptive and potentially more influential.

• This would create an environment where ideas can be shared, developed and evaluated.

• The LCCGE would be a member of this network

LCCGE approach• No inbuilt allegiance to any one model - the

network will always look for better thinking• Longer term view• Additional factors to take into account

– Variability in stakeholder influence– Heterogeneity of stakeholder interests– ‘Schizophrenia’ within stakeholder groups– The empowered & connected consumer– Ever increasing mobility of capital & production

• Strategic Options beyond the pursuit of share price appreciation

Applying new thinking• Combining academic research with “real world”

experience (frequently in the same individual) produces practical outcomes for organisations.

• The next part of the session looks at some of the strategic options resulting from the dynamic and complex nature of the stakeholder groups.

• Analysis of currently unfolding cases is presented by LCCGE members who are PG students in CG&BE

State Owned Enterprises in Chile

Germán Heufemann

2008 SASE Meetings, San José, Costa Rica

Scale and scope of SOEs

• Impact of SOEs on economic performance• Key players in strategic sectors

Defense, transport, water supply, telecommunications, and banking

• State remains as a relevant owner of productive assets for economic and political reasonsPrivatisation is not always the best alternative

Governance rationale in SOEs• Specific governance challenges

– Soft budget constraints, complex agency chain & common agency

• Absence of external forms of governance– No market for corporate control, potential

take-overs, possibilities to go bankrupt– Incomplete “shareholder model”

governance in SOEs• Potential benefits of co-operation among

corporate stakeholders

SOEs and the Ownership Entity in Chile

OECD guidelines

SEP Code

Legal Framework

SEP(Ownership entity)

State Owned Enterprises

Board of Directors(Chairman)

Management(CEO)

Glo

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uide

line

sof

corp

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vern

ance

Loc

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uide

line

sof

corp

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ego

vern

ance

Loc

al la

ws

ofco

rpor

ate

gove

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ceOECD guidelines

SEP Code

Legal Framework

SEP(Ownership entity)

State Owned Enterprises

Board of Directors(Chairman)

Management(CEO)

Glo

bal g

uide

line

sof

corp

orat

ego

vern

ance

Loc

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uide

line

sof

corp

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Loc

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• Ensure a level-playing field with the private sector

• Ownership function within the State administration

• Transparency of SOEs’ objectives and performance

• Strengthen and empower SOE boards• Provide equitable treatment of non-

controlling minority shareholders

SOEs and the Ownership Entity in Chile

SOEs and the Ownership Entity in Chile

Corporate Governance in

SOEs

From To

RESULTS

COMPLIANCE RESULTS

Law

Ethical standards

Mitigate risks

Win the confidence of the markets

Improve competitiveness

COMPLIANCE

1

2

3

4

5

Source: Adapted from Heufemann and Di Natale, “Chile: System of Corporate Governance”

1

2

3

4

5

Legal framework of the country

Code of Ethics and expected behaviours

Local Corporate Governance practices (SEP Code)

International Corporate Governance guidelines (OECD)

Effective implementation of International Corporate Governance guidelines

Chilean

SOEs

Developed

Countries

SOEs

Corporate Governance in

SOEs

From To

RESULTS

COMPLIANCE RESULTS

Law

Ethical standards

Mitigate risks

Win the confidence of the markets

Improve competitiveness

COMPLIANCE

1

2

3

4

5

Source: Adapted from Heufemann and Di Natale, “Chile: System of Corporate Governance”

1

2

3

4

5

Legal framework of the country

Code of Ethics and expected behaviours

Local Corporate Governance practices (SEP Code)

International Corporate Governance guidelines (OECD)

Effective implementation of International Corporate Governance guidelines

Chilean

SOEs

Developed

Countries

SOEs

Conclusions• Corporate governance practices in Chilean

SOEs are in a stage of “risk mitigation”• Incomplete shareholder model of governance

as an opportunity to develop a co-operative approach in SOEs

• Agenda for Reform– Protecting vulnerable non-controlling minority

shareholders in SOEs– Increase enforceability of the SEP Code– Improve and formalize the process of consultation

and co-operation among SOEs and the ownership entity

Global Responses to the Burmese Conflict

Paula Ramos Sanchez & Sarah Yeh

2008 SASE Meetings, San José, Costa Rica

Political & economic context

• Political context– Military rule since 1962– Military government has resisted all efforts

at democratisation

• Economic context– Rich in natural resources but 75% of

population living below the poverty line– May 2008: Cyclone Nargis

• Government’s refusal of foreign aid • Absence of effective governance at all

levels

Consequences of economic & political mis-management

• Approx 50% annual budget spent on armed forces– Military repression through regime of terror

• Approx 8% annual budget spent on education– No freedom of speech, press, assembly,

association, religion or movement

• Approx 3% annual budget spent on health – Widespread AIDS & TB

International Responses (positive)

• National Governments• International Institutions• Corporations• Unions• NGOs• Universities• Investors• Consumers• Religious groups

International Responses(negative)

• National Governments• Corporations• Investors• Consumers

Consequences of the piecemeal response

• The conflict continues• No consensus on a way forward• Absence of new approaches to

governance at different levels– Local, national, global– Individual, corporate

• Would a more coordinated approach make a difference?

Wrap-Up

Sue Konzelmann, Director LCCGE, Director PG Management Programmes, Director PG Programmes in Corporate Governance & Business Ethics (s.konzelmann@lccge.bbk.ac.uk)

Marc Fovargue-Davies, Assistant Director, LCCGE (m.davies@lccge.bbk.ac.uk)

Germán Heufemann, MSc CG&BE & LCCGE (ceoceo1@gmail.com)

Paula Ramos Sanchez, MSc CG&BE & LCCGE (pauula@gmail.com)