THOMAS CLARKE THE GLOBALISATION OF CORPORATE GOVERNANCE? IRRESISTIBLE MARKETS MEET IMMOVABLE INSTITUTIONS NEW ZEALAND GOVERNANCE CENTRE AUCKLAND UNIVERSITY 15 AUGUST 2008
Outline: Globalisation of Corporate Governance? p � Why Globalisation of Corporate Governance? � Increasing Scale and Activity of International Equity M Markets k � Inflation of CEO Pay in United States � Theories of Convergence of Governance Institutions � Possible Alternative Directions For Governance Di Diversity it
Why Globalisation of Governance? Why Now? y y � International deregulation of financial markets � Continued growth and deepening of global capital markets: equities � Continued growth and deepening of global capital markets: equities, debt securities, bank deposits, and other assets � Growth of investment institutions, particularly Anglo-American institutional investors balancing portfolios with international investments � Effective monitoring necessary for security of investments � Effective monitoring necessary for security of investments � Recognition that governance matters for accountability, performance and attracting capital � A general trend in society towards openness, transparency and disclosure
What is Globalisation? “An international economy links distinct national markets; A global economy fuses national markets into a coherent whole’ into a coherent whole (Kobrin 2002: 7).
Convergence or Diversity in Corporate Governance? in Corporate Governance? Two parallel universes of corporate governance historically emerged: � A di � A dispersed ownership model characterized by strong and liquid hi d l h t i d b t d li id d securities markets, high disclosure standards, high market transparency, and where the market for corporate control is the ultimate disciplining mechanism; and, � A concentrated ownership model characterized by controlling � A concentrated ownership model characterized by controlling shareholders, weak securities markets, low transparency and disclosure standards and often a central monitoring role for large b banks who have a stake in the company (Coffee 2000; Clarke 2005). k h h t k i th (C ff 2000 Cl k 2005)
Who is going to win? g g
IRRESISTIBLE MARKETS? Increasing Scale and Activity Increasing Scale and Activity of International Equity Markets
Market Capitalisation of Regional Stock Exchanges Domestic Market Capitalisation 1990 p - 2004 20 000 18 000 16 000 14 000 12 000 12 000 USD bn 10 000 8 000 6 000 4 000 2 000 0 90 90 91 91 92 92 93 93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 AMERICAS EUROPE-AFRICA-MIDDLE EAST ASIA-PACIFIC Source: World Federation of Exchanges, Annual Report 2005: 51.
Value of Share Trading of Regional Stock Exchanges Value of Share Trading 1990 - 2 004 40 000 40 000 35 000 30 000 25 000 USD bn 20 000 15 000 10 000 5 000 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 AMERICAS EUROPE-AFRICA-MIDDLE EAST ASIA-PACIFIC Source: World Federation of Exchanges, Annual Report 2005: 55.
Source: World Federation of Exchanges 2008 Domestic Equity Market Capitalization in USD p y q
Source: World Federation of Exchanges 2008 Domestic Equity Market Capitalization p y q
Source: World Federation of Exchanges 2008 Recent evolution of Share Trading Value in USD g
Source: World Federation of Exchanges 2008 Share Trading Value g
Investments Flows- New Capital Raised by Shares Source: World Federation of Exchanges 2008 y p
New Listings in Major Markets g j 700 700 Number of Companies 600 London SE 500 400 Toronto SE 300 Australian SE 200 Nasdaq NYSE 100 Tokyo SE Deutsche Borse 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: World Federation of Exchanges 2008
US Investors Holdings of Non-US Equities g q US$ Billions 2050 15% 15% 13% 13% 1550 11% 11% 1050 9% 9% 9% 9% 7% 7% 550 5% 5% 50 3% 3% 3% 3% 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -450 $ Billions % of All Equity Holdings Source: Federal Reserve Board Flow of Funds
NYSE Overview Statistics Average daily volume volume Global market Global market (Millions of capitalization Companies Percent Seat Year shares) ($T) listed turnover prices 1,582 $20.80 2,779 102% $2,600,000 2005 1,457 $19.80 2,768 99% $1,515,000 2004 1,398 $17.30 2,750 99% $1,500,000 2003 1,441 , $ $13.40 2,783 , 105% $2,550,000 $ , , 2002 1,240 $16.00 2,798 94% $2,300,000 2001 1,042 $17.10 2,862 88% $1,700,000 2000 809 809 $16 80 $16.80 3 025 3,025 78% 78% $2 300 000 $2,300,000 1999 1999 674 $14.00 3,114 76% $2,000,000 1998 527 $11.80 3,047 69% $1,750,000 1997 412 412 $9 20 $9.20 2 907 2,907 63% 63% $1,450,000 $1 450 000 1996 1996 157 1,774 46% $430,000 1990 45 1,570 36% $275,000 1980 12 1,351 19% $320,000 1970 3 1,143 12% $162,000 1960 Source: NYSE 2006
Inflation of CEO Pay in United States Inflation of CEO Pay in United States
Median CEO Pay in the US 1980- 2001 y The level and composition of median CEO pay in the US From 1980 to 2001 8 7 66 % 63 % 6 illions) % ian CEO pay ($ M 5 60 58% Salary and bonus Equity-based pay 4 54% 3 % 43% % 49% Med 40% 37% 32% 2 95% 96% 92% 86% 1 93% 90% 99% 9 0 1980 1983 1986 1989 1992 1995 1998 2001 Source: Hall B. J; 2003.
Executive Pay as a Percentage of Workers Pay in the US 1990-2004 (S & P 500) ( ) 600 500 400 300 200 100 0 0 1990 92 94 96 98 2000 2002 2004 •Includes salary, bonus, restricted stock, payouts on other long term incentives, and The value of options exercised Source: Institute for Policy Studies/ United States for a Fair Economy.
Top Ten US Highest Paid CEOs p g Table 1.2 US Top Ten Highest Paid CEOs in 2005 Market Company p y CEO Pay (USD ) y ( ) Capitalization p Rank (USD Billions) 1 IAC/ Interactive Barry Diller 295 000 000 14 2 Capital One Financial Richard D. Fairbank 249 000 000 18 3 Yahoo Terry S. Semel y 230 000 000 47 4 Nabors Industries Eugene M. Isenberg 203 000 000 11 5 Colgate Palmolive Reuben Mark 147 970 000 27 6 Country Wide Financial Angelo R. Mozilo 142 000 000 22 7 Cendant Henry R. Silverman y 139 960 000 21 8 KB Home Bruce E. Karatz 135 560 000 6 9 Lehman Brothers Holdings Richard S. Fuld 122 670 000 26 10 Abercrombie & Fitch Michael S. Jeffries 114 000 000 6 Source: Compiled from Sahadi J. (2006); Forbes (2006); Company proxy reports; FT Global 500.
Top Ten Paid Rest of World CEOs p Table 1. 3. Rest of the World Highest paid CEOs in 2004 Market Company CEO Pay Capitalization Rank Rank (USD ) (USD ) (USD Billions) (USD Billions) 1 UBS Peter Wuffli 6 820 000 95 2 Roche Group Franz Humer 5 569 000 96 3 Banco Santander Central Alfredo Saenz 5 448 000 76 4 4 BP BP Lord Browne of Madingley Lord Browne of Madingley 5 356 000 5 356 000 221 221 5 Nestle Peter Brabeck-Letmathe 5 165 000 110 6 Glaxo SmithKline Jean-Pierre Garnier 4 688 000 134 7 Nokia Jorma Olilla 4 292 000 72 8 Siemens Group Heinrich von Pierer 3 804 000 70 9 BHP Billiton Charles Goodyear 3 544 000 82 10 Novartis Group Daniel Vasella 3 290 000 124 Notes: Figures on market capitalisation are based on reports as per 31 March 2005. Source: Compiled from Kitchens S. (2004); Forbes (2006) CEO Pay, Company proxy reports, FT Global 500.
Average US Top Ten Ceo Pay vs Rest of World g p y 178 million 178 million (2005) (2005) Average Average US CEO top ten Pay US CEO top ten Pay (2004) (2004) Average Average Rest of the world Rest of the world Top ten CEO Pay Top ten CEO Pay 4 8 4 8 4.8 million 4.8 million illi illi 0 0 Non US CEOs Non US CEOs US CEOs US CEOs Source: Data compiled from Kitchens S. (2004); Forbes (2006) CEO Pay, Company proxy reports, FT Global 500; Sahadi J. (2006).
Top Five US CEOs vs Top Five US Hedge Fund Managers CEOs 2005 Top Five US Hedge Fund Managers CEOs 2005 US $ million US $ million 1,600 1500 1400 1,400 1,200 1,000 , 840 800 600 600 550 500 400 295 249 230 203 203 147.97 200 0 Reuben Eugene M Terry S. Richard D. Barry Diller Paul Tudor Stev en George T. Boone James Mark Isenberg Semel Fairbank Jones II Cohen Soros Pickens Jr Simons Capital BP One Capital Colgate- Nabors IAC / Tudor SAC Soros Fund Renaissance Yahoo Financial Management Palmolive Industries Interactive Investments Capital Management Technologies
CEO Pay / S & P Index / Profits / Average Pay in US i US 450% 409.2 % 400% Average CEO pay 350% 326.6% 296.2% 300% 260.6% S&P 500 250% Index Index 200% 150% 106.7% 106.7% 100% Corporate Profits 50% Average worker pay 4 3% 4.3% 0% Minimum wage -9.3% -50% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: Institute For a Fair Economy (2006).
Different Views on Company Orientation y p
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