The UK and Portugal produce new EWC legislation

In the past few years Dutch companies have embraced the Anglo-Saxon shareholder philosophy.  They are not performing any better as a result, but worse.  This transpired from a survey that Business Administration student Pieter-Jan Bezemer from the Erasmus University Rotterdam presented as part of his dissertation in March.  Bezemer entitled it: Diffusion of Corporate Governance Beliefs.  He does not use that last word coincidentally, because a Dutch company embracing Anglo-Saxon principles is a little irrational.

The Anglo-Saxon ‘shareholder philosophy’ is often placed in contrast with the ‘stakeholder philosophy’, that is characteristic of the mainland of north-western Europe.  This Rhineland model is not solely based on the shareholder and quick profits, but the long-term is also important, as are the interests of more parties.

Bezemer ascertains that the Anglo-Saxon philosophy was very popular among the top 100 Dutch companies quoted on the stock exchange between 1992 and 2006: subscription rose from 13 to 74 %.  Bezemer points out that these companies were characterised by the fact that the salary of managers was linked to developments in the value of company shares (and stock options).  What was also specific to these companies was the fact that companies, to drive the price up, earmark a lot of money to get their own shares from the market.

Bezemer states that companies having switched to this philosophy were far less profitable in terms of their assets than companies who kept to the Rhineland model.  His survey also showed that these companies invest less in research and development.  And they did not even get better results on the stock exchange, both categories scored equally, ‘whereas one expected a positive difference’, the researcher said.

Bezemer does not go as far as to say that the Rhineland model is economically superior to the Anglo-Saxon one.  He does think that the Dutch companies that adopt this model have shifted to something that suits them less and that they are really not good at.  It is difficult to tell whether this is going to change in the future.  Bezemer believes that there is a counter-current that is gaining ground, but there is also strong backing of the shareholder philosophy from the financial markets.  Their influence is so strong that even major Dutch pension funds have not changed tack.  Bezemer finds it remarkable however that family-based companies have not jumped on the shareholding bandwagon and continue to perform well.

Another important finding of Bezemers’ is that the traditional Dutch supervisor network has unravelled and this in itself has negatively impacted innovation.  ‘After all these networks do function as multipliers of knowledge’, he said.