Dinner Program 18:30 Dinner Opening & Introductions Hilko - - PowerPoint PPT Presentation

Shaping a trustworthy, forward-thinking financial industry

18:30

Dinner – Opening & Introductions Hilko Brouwer – President of CFA Society Netherlands

18:45

Behavioral Ethics: why people don’t always behave ethically Raghavendra Rau – Sir Evelyn de Rothschild Professor of Finance, University of Cambridge, Judge Business School Governance: at a crossroads Jaap Winter - President Executive Board, Vrije Universiteit Amsterdam Closing remarks Tom Cummings

22:00

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Dinner Program

GOVERNANCE AT THE CROSS-ROADS

THREE THEMES

• Persistent governance themes for public companies
• Shareholders and (lack of) engagement
• Board performance
• Regaining trust

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SHAREHOLDERS DID NOT DISCIPLINE MANAGEMENT

• Walker Review UK, European Commission: Lack of

disciplining by shareholders contributed to excessive risk taking

• More engagement needed
• Really?
• Shareholders push risk taking, believing they can hedge by

diversifying

• Company cannot hedge in same way
• Recent proposal Shareholder Rights Directive to stimulate

engagement,voting, disclosure of asset management arrangements

4

WHY ENGAGEMENT BY INSTITUTIONAL INVESTORS IS A MYTH

• Excessive diversification (way beyond level relevant for

reducing risk)

• Prudent person: no concentration
• Follow the market
• Solvency rules, debt over equity
• Excessive focus on liquidity
• Mark to market of liabilities
• Cognitive bias
• Intermediation separates owners from assets
• Fiduciary duty: don’t underperform
• Better conventionally wrong than unconventionally right
• No interest in engagement, unless cheap and effortless (OECD)
• Forcing engagement useless (proxy voting)

5

UNDERSTANDING BOARD PERFORMANCE

• Dominant paradigm agency theory
• Shareholders principals, managers agents
• Non-executives’ key role is to monitor agents
• Independence
• Expertise
• Diversity
• Nr of board seats
• Incomplete grasp of board performance
• Understanding uncertainty
• Navigate
• Direct and adapt
• Key issue on boards in US (Lorsch) and EU (Van de

Loo/Winter): roles of non-executives not clear

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BOARD PERFORMANCE: INSIDE THE BLACK BOX

• Clarifying roles through organisational role analysis, incl

revealing (unconscious) perceptions

• Focus on interaction between executives and non-executives
• Board Reality Questionnaire
• Group Dynamics
• Biases
• Group think
• Personal traits
• Looking good
• Generating sense of responsibility, in action
• Way beyond grasp of regulation

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REGAINING TRUST

• Knee-jerk response post crisis: regulate more
• More and more rules make us less and less responsible
• Barry Schwarz: more and more rules chip away our moral

skills (and more and more incentives destroy our moral will)

• Absolute horror: EBA and ESMA to develop technical

standards for honesty and integrity (CRD IV)

• What then?
• Need to develop (learn again) conversations that reinforce

personal access to morality, judgement and responsibility

8

TWO CONCEPTS GENERATING REAL CONVERSATIONS AND JUDGEMENTS

• Virtue ethics
• Aristotle
• MacIntyre (After Virtue)
• Virtues: acquired human qualities needed to achieve

internal goods of a human practice and protect against domination of external goods

• Requires reflection and judgement, not routinely following

rules

• Integrity honour your word, also when you will not keep it
• Not normative, but about effectiveness, how to make our

word work

• Requires reflection: what is my word? What does it require

now? Conversation without attack and defence

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IT’S ALL ABOUT PRACTICE

• Aristotle
• Practicing virtues
• Thomas Aquinas
• Practicing prayer
• Peter Sloterdijk
• Anthropotechnik

Denn da ist keine Stelle, die dich nicht

• sieht. Du musst dein Leben Ändern (Rilke)

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