58 Business The EconomistJune 1st 2019
2 dent, Alpha Condé, told Le Mondein 2016.
Bolloré sa has recruited from France’s net-
work of former ministers, spooks and oth-
er grandees, often with tangled business
ties in its former colonies. Critics allege Mr
Bolloré has skewed the coverage of his tv
channels and newspapers in favour of poli-
ticians vital to his business interests.
Mr Bolloré keeps close to French power,
too. After winning the French presidential
election in 2007, Nicolas Sarkozy holi-
dayed on Mr Bolloré’s yacht. “I’ve known
Vincent Bolloré for 20 years,” Mr Sarkozy
explained at the time. Mr Bolloré’s son,Yannick, has called the current president,
Emmanuel Macron, “a friend”. Bolloré père
has reportedly lobbied the French state to
keep its 3% stake in Vivendi.
Mr Bolloré and Bolloré sa deny any im-
propriety in all these relationships. As for
corporate governance, people close to Mr
Bolloré dismiss concerns as specifically
Anglo-Saxon. Family groups are lauded in
Europe as long-term investors who see be-
yond quarterly earnings. Mr Bolloré has
made no secret that his son Cyrille, 33, who
chairs Bolloré sa, or Yannick, 39, who
chairs Vivendi, will be in charge one day(a third son is not active in the business; a
younger daughter is in its lower echelons).
For now, despite stepping off the board
of Bolloré sa, the patriarch remains the real
boss. He retains positions—and influ-
ence—throughout the mille-feuille. He still
calls the shots at both Bolloré and Vivendi.
For years he has promised to relinquish all
positions in 2022, when he turns 70 and the
family business turns 200. Several Bolloré
investors worry that the untested sons lack
their father’s track record. Given the elder
Mr Bolloré’s controversial tenure, others
may see that as a virtue. 7Bartleby Ask and you shall receive
Economist.com/blogs/bartlebyA
rthur balfourwas a British prime
minister who did not think much of
his party members. “I’d rather take advice
from my valet than from the Conserva-
tive party conference,” he said. Corporate
executives, particularly in America,
seem to take a similar attitude towards
their shareholders, believing that, like
children, they should be seen but defi-
nitely not heard.
Maybe managers should get their
fingers out of their ears and start listen-
ing to their investors. That is the conclu-
sion of a recent paper* by Clifford
Holderness of the Carroll School of
Management at Boston College.
In America and a few other countries,
boards can issue more shares without
shareholder approval. In some countries,
shareholders must approve issuance
above a certain threshold. And in yet
others, investors must agree before any
new stock can be created. So what hap-
pens to a company’s share price when
new shares are issued? Mr Holderness
performed a meta-analysis of more than
100 studies of stock reactions around the
world. He found that, when shareholders
approved issuance in advance, the price
tended to rise by an average of 2%. But
when managers issued stock without
shareholder approval, the share price
declined by an average of 2%.
The simplest explanation for this lies
in the agent-principal conflict between
executives and investors. As Mr Hold-
erness writes, if agency conflicts did not
exist, “shareholder voting on equity
issuance should not matter.” However,
managers may want to issue shares to
fund expansion of the company, allow-
ing them to control more assets and
demand a higher salary. Investors, mean-
while, may worry about the impact of
expansion on long-term returns anddislike the dilution of their control.
Another sign of agent-principal con-
flicts are shares that are privately placed
with selected investors or used to pay for
takeovers. In Australia any offering of
more than 15% of the equity must be sub-
ject to shareholder approval; in America
the threshold is 20%. In both countries
there is a clustering of share issuance just
below the limit; managers go out of their
way to avoid seeking approval. In April
Occidental Petroleum promised $10bn-
worth of preferred shares to Berkshire
Hathaway, Warren Buffett’s conglomerate,
should its bid for Anadarko, a rival oil firm,
succeed. Mr Buffett’s money helped it
avoid asking shareholders to authorise the
Anadarko deal.
This disdain for shareholder views
contradicts the ethos of American capi-
talism. The system works, it is usually
argued, because companies respond to
shareholder pressure and because broad
share ownership gives everyone, includ-
ing workers, a stake in the American
dream. One reason for the success of priv-
ate equity is that investors enjoy closerscrutiny over what managers do.
But when it comes to public compa-
nies, shareholders tend to be treated like
an awkward uncle at a family gathering.
Their only rights are to sell their shares
or to vote against the reappointment of
directors. In any other field this would be
extraordinary. Imagine if you appointed
a letting agent to look after your house
and they decided to spend lots of your
money on gold taps and chandeliers.
When you complain, they respond that
you are only entitled to sell the house or
to fire them at the end of their contract.
Managers have long grumbled that
shareholders want to interfere too much.
A new complaint is that socially con-
scious investors may insist that firms
concentrate on non-financial factors,
like treating workers better or cutting
carbon emissions. This concern seems
ill-founded. For example, research**
shows that companies voted the “best to
work for” produce higher subsequent
long-term returns.
More generally, most meta-studies
have found that companies with better
environmental, social and governance
records improved their financial perfor-
mance. Mr Holderness’s work puts the
tin lid on the argument that managers
should ignore investors. When it comes
to shareholders, managers should re-
member the words of Diogenes: “We
have two ears and one tongue so that we
wouldlistenmoreandtalkless.”Why managers should listen to shareholders.............................................................
* “Equity issuances and agency costs: The telling
story of shareholder approval around the world”,
Journal of Financial Economics
** “Employee satisfaction, labour market flexibility,
and stock returns around the world”, by Alex
Edmans, Lucius Li and Chendi Zhang. European
Corporate Governance Institute Working Paper