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 Close

Thank you to our sponsors:

Dinner Program

GOVERNANCE AT THE CROSS-ROADS

THREE THEMES

• Persistent governance themes for public companies

• Shareholders and (lack of) engagement

• Board performance

• Regaining trust

3

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

6

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 7

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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