Welcome to the Boardroom Governance Podcast. I’m your host, Evan Epstein. In this episode, I talk with Stephen Davis, a senior fellow at the Harvard Law School Program on Corporate Governance and Institutional Investors. He co-chairs the Advisory Board of Hawkamah, the corporate governance institute based in the UAE; serves on the founding supervisory board of Stewardship Professionals e.V. (StePs); and is a co-founder of the Capital+Constitution project sponsored by the Brookings Institution and United States Democracy Center. Stephen has been actively involved with corporate governance matters since 1988 when he founded the Global Shareholder Services unit at the IRRC, in Washington, DC. He has been a nonresident senior fellow in governance at the Brookings Institution, where he co-directed the World Forum on Governance; a senior advisor on governance at Teneo; and outside advisor to the Nissan Special Committee on Improving Governance. From 2007-2012 he was executive director of the Yale School of Management’s Millstein Center for Corporate Governance and Performance and Lecturer on the SOM faculty. In this podcast, we talk about the history of investor advocacy, the evolution of international corporate governance, and how U.S. corporate governance has evolved since the late ‘80s, particularly with the rise of institutional investors. We also talk about current issues including stewardship, pass-through voting power, ESG and sustainable finance. We finally address dual-class share structures and his involvement as the founding Chairman of the BPP Oversight Committee, a self-regulated body overseeing the proxy advisory industry. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com
0:00 -- Intro.
2:12 -- Start of interview.
3:00 -- Stephen's "origin story". His start with IRRC in Washington, DC (1988). His focus on international corporate governance.
7:01 -- The anti-Apartheid divestment campaign in South Africa. "Most people don't quite realize that in the U.S. the real corporate governance movement -what we might call today the ESG movement- stems from the campaign for anti-Apartheid sanctions and divestment." (early 1970s).
10:27 -- On the historical background of investor advocacy, and his book on Isaac Le Maire "the first short seller and shareholder activist." The conflict with the Dutch East India Company (VOC) in the early 1600s (the first joint-stock company in the world).
15:19 -- On the evolution of U.S. corporate governance and the rise of institutional investors since the late 1980s (particularly the big four: BlackRock, Vanguard, State Street and Fidelity). "[F]or most of the time (from late '80s to about 7 years ago), corporate governance has been more or less an exercise in throat clearing, a box-checking exercise, a compliance/legal matter that had to be done because of the DOL Avon Letter in 1988 [pointing out that proxy voting, like buy/hold/sell decisions, is a fiduciary act, and must be for “the exclusive benefit of plan participants."] "There was a lot of corporate governance talk, but it was at the margins."
19:27 -- What changed in large asset managers to go from "passive investors" to more active with investment stewardship. Some factors (in the last decade): 1) Influence from Europe, where they insisted that these large funds sign up for commitments such as the UN Principles for Responsible Investment, and "to demonstrate bona fides when it comes to ESG factors," 2) Many of their institutional clients were becoming more aware of the importance of ESG factors; 3) Biggest factor: rising class of millennial investors, who have a different set of expectations on their financial agents.
25:54 -- On the new policies such as from BlackRock and Vanguard to pass-through voting power to beneficial owners.
28:50 -- "One of the most exciting development in the capital markets is that in the last few decades we made a lot of progress on 1) management accountability to boards; 2) boards better equipped to oversee management; and 3) boards responsiveness to institutional investors. But the last piece of the puzzle is the accountability of institutional investors to the real sources of capital (beneficial owners) - the governance of institutional investors or stewardship governance." [see article Agency Costs of Agency Capitalism, by Gilson and Gordon (2013)] Citizen investors initiatives (to give them a voice), for example Tumelo (in the UK) or Say Technologies in the US (purchased by Robinhood).
32:30 -- On proxy advisors and the Best Practices Principles for Shareholder Voting Research and its Oversight Committee (where he was the founding Chairman until 2022). This is an example of "monitored self-regulation." Konstantinos Sergakis is now the Chair.
38:34 -- On the practice of dual-class share structures (supermajority voting structures). "A perennial issue in corporate governance." The case of Elsevier and Robert Maxwell.
42:25 -- On "corporate governance with Chinese characteristics."
44:37 -- Challenges and opportunities of corporate governance in regions such as the Middle East and Africa (where he has been active). "There has been progress at a pace that in my wildest dreams I would have not anticipated." The sovereign wealth funds are the next stage of progress, where they will go from passive to more active. Examples of stewardship from Malaysia, Singapore, Norway and South Africa.
50:25 - The books that have greatly influenced his life:
51:44 - His mentors, and what he learned from them.
53:17 - Quotes he thinks of often or live his life by. From his high school teacher "Never trust the magic of the printed word.”
53:50 - An unusual habit or an absurd thing that he loves: olive picking.
54:28 - The living person he most admires: his wife.
Stephen Davis is a senior fellow at the Harvard Law School Programs on Corporate Governance and Institutional Investors
__
You can follow Stephen on social media at:
Twitter: @StephenM_Davis
LinkedIn: https://www.linkedin.com/in/stephen-davis-6282424/
__
You can follow Evan on social media at:
Twitter: @evanepstein
LinkedIn: https://www.linkedin.com/in/epsteinevan/
Substack: https://evanepstein.substack.com/
__
Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License