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Vrije Universiteit Amsterdam Amsterdam Research Centre for Corporate Governance RegulationWINTER 2006 NEWSLETTER |
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No. 4. December 2006 |
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Editorial
Article
Book Announcements Decline of the Corporate Community Network Dynamics of the Dutch Business Elite Transnational private governance and its limits
Other News Items ARCCGoR informs IASB debate in German parliament ISA workshop on private authority
SUBSCRIPTIONS The newsletter is distributed electronically to academics and practitioners active in corporate governance (regulation) and to interested individuals. Please send an email to James Perry if you wish to be added to or removed from the mailing list. |
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WELCOME!This newsletter series is published by the Amsterdam Research Centre for Corporate Governance Regulation (http://www.arccgor.nl/). The Centre is part of the Political Science Department at Vrije Universiteit Amsterdam. The newsletter provides you with information on our current research projects and events taking place. Each issue also includes an editorial and, from time to time, short articles by our researchers. Disclaimer: Opinions expressed by contributors in this newsletter do not necessarily reflect those of the Vrije Universiteit or those of other ARCCGoR researchers.
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Locusts in the Low Countries
Bastiaan van Apeldoorn
The locusts are back. More than a year after the (in)famous remarks made by Franz Müntefering, then chairman of the German Social Democratic Party, about Anglo-Saxon private equity investors feasting on cheap German corporate assets, the same ‘locusts’ metaphor is being used again. This time the swarming pests are attacking the Low Countries, or so claimed Joop Wijn, Dutch minister of economics, this summer when expressing his fears about the apparent sale of The Netherlands Inc. In addition he also suggested that the pendulum between financial interests and ‘other interests’ (of the firm, of employment, of the economy as a whole) had perhaps already swung too far towards the former. In the ensuing public debate, in which Dutch trade unions for the first time also added their critical voices, worries about the alleged invasion of foreign investors were also extended to so-called hedge funds.
Private equity now accounts for half of the total value of take-overs in the Dutch market (against 6% three years ago).[i] In a relatively short period of time, private Anglo-Saxon investment groups have bought renowned firms such as VNU and Vendex KBB, not to mention a division of the number one icon of Dutch corporate pride, Philips. What is driving these investors? As two McKinsey consultants claimed recently in an article they wrote for the Financial Times, the main advantage of private equity over public companies is the way the former can exert direct ownership control over management – control exercised in order to maximise financial gain [ii]. The same financial perspective presumably explains the behaviour of hedge funds, another increasingly common feature of the Dutch corporate landscape – especially those (again primarily Anglo-Saxon) hedge funds that buy up large stakes of undervalued public corporations in order to exert maximum pressure on management to increase shareholder value, often by selling many of their assets to focus on the alleged core business. Hedge funds Centaurus and Paulson, both operating from London and New York, have made more than a few waves with their unprecedented (in the Netherlands, at least) efforts to shake things up at retailer Ahold and industrial conglomerate Stork. The resultant battles with these companies’ boards are still ongoing but there is already talk that they might end up being fought in a court room - this alone is indicative of a significant power shift within Dutch corporations.
Such public power struggles, together with the ensuing public debates, seem to indicate a growing politicisation over the fundamental changes that are taking place in Dutch corporate governance. But the question is: How deep does this politicisation actually go, and to what extent does it address the fundamental politics of what is going on? On the latter point, things do not look good. It is noticeable that the obvious question of why the alleged locusts have arrived in the first place is completely absent from the public debate. Clearly, the globalisation of capital markets is part of the story with US investors, in particular, increasingly roaming the world for cheap assets. From another perspective we may interpret these developments as a further step in the financialisation of contemporary capitalism. But globalisation and financialisation do not fall from the sky. Like ‘the market’, they are politically constituted. The current controversy rather one-sidedly focuses on criticising corporate governance practice, laying the blame above all on the doorstep of ‘predatory’ Anglo-Saxon investors. What is much less recognised therefore is the role played by changing corporate governance regulation in enhancing the mobility of these new type of investors– breaking open the traditional managerialism of Dutch corporate governance, and opening the gates to all types of ‘outsiders’, not only geographically defined. Arguably, European integration is playing a key role in this regulatory change, in particular the creation of an integrated financial market as well as the attempt to create a European market for corporate control. With respect to the latter, the recent implementation of the EU Takeover Directive will, for example, enable bidders to ‘break through’ many of the traditional Dutch anti-takeover devices.[iii]
The ‘locusts’ won’t just leave if kindly asked, nor will they conform to any voluntary code which has meaningful impact. Legislation is what is needed if we are genuinely concerned about these developments. Moreover, given the origins of much of the regulatory change, the EU would be the logical level at which this legislation should be enacted. However, considering the market-liberal orientation of most Brussels’ policy-makers this looks like being an uphill struggle.
[i] NRC Handelsblad, 25 November, 2006, p. 24. [ii] Andreas Berouthsos and Conor Kehou ‘A lesson in governance from private equity firms’, Financial Times, 30 November, 2006, p. 13. [iii] Freshfields Bruckhauser Deringer, ‘New public takeover regime in the Netherlands (Briefing)’, April, 2005.
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2006 - A Record Year Angela Wigger
This is the time of year when, before we are allowed to open the Champaign and celebrate the coming twelve months, we are hit by a deluge of year-end reviews concerning the events of the previous twelve.
With this in mind, I would like to add to this deluge by reviewing one particular economic development that is noteworthy. The year 2006 has witnessed a merger boom of unprecedented scale if measured in terms of the combined value of deals that were concluded world-wide. This year breaks the previous record of mergers and acquisition (M&A) value set six years earlier. Whereas in 2000 the total value of M&As was US $3.33 trillion, this year's tally had already reached US $ 3.46 trillion by November. To put that into context: the total value M&As exceeds the size of Europe’s largest economy (German GDP is US $ 3 trillion) and amounts to US $ 20 billion of takeovers each working day. In terms of the actual number of mergers, the year 2000 remains at the top list with 31,019, which compares to 28,312 in 2006 (according to data from transaction management firm Dealogic).
The sight of mega-mergers involving global champions of equal size, rather than bigger companies eating smaller ones, is nothing new. During the last wave of mergers the acquisition of Mannesmann by Vodafone AirTouch – amounting to a US $183 billion deal in 2000 – entered the history books as the biggest deal ever (which alone exceeds to the GDP of Portugal). Even though the number and value of M&A activity slowed down somewhat after 2000, which is generally ascribed to the bursting of the dot.com bubble, levels continued to remain relatively high in the following years. That 2006 should set a new record is therefore not totally unexpected. However, 2006 was truly remarkable in another way. Of the ten world-wide largest deals ever, eight were concluded this year. The biggest transaction was the acquisition of BellSouth by AT&T (US $ 83 billion), but E.ON/Endesa (US $ 66 billion), Suez/Gaz de France (US $ 43 billion) and Mittal/Arcelor (US $ 39 billion) also demonstrate a significant trend towards concentration.
The reasons usually given by commentators for this remarkable development are that historically low interest rates allow private equity companies in particular to attract private investors and banks, and thus lend huge amounts of money to fund M&As. Another explanatory factor in the 2006 M&A boom, and one that is often overlooked, is the fact that competition authorities around the world, and especially those of the leading economies of the US and EU, seem reluctant to intervene into the market and curb the pace of economic concentration. In the absence of a world competition authority guaranteeing fair competition, M&A activity will continue at the same rate throughout 2007. Happy New Year!
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Decline of the Corporate Community Network Dynamics of the Dutch Business Elite Eelke Heemskerk, Amsterdam University Press, February 2007 Paperback 256 pages ISBN 9789053569733
In this book to be published in February 2007, Eelke Heemskerk demonstrates that even in a liberal market economy, corporate directors need social networks to communicate and coordinate their strategic decisions: Corporate governance networks remain an irrefutable element of the daily corporate reality. From its inception, big business in the western industrialised world has been organised in national business communities. Central elements of these business communities are corporate board interlocks that constitute the notorious ‘Old Boys Network’. This corporate elite connects the centres of corporate governance. In recent times, these networks of the corporate elite show signs of decline. Heemskerk shows how the ‘Old Boys Network’ fell apart, and how this has affected the organisation of the Dutch economy. Combining formal network analysis with insights from interviews with key corporate elite members, he shows how during the last quarter of the 20th century the Dutch business community has been eroded. This is interpreted as a drift towards a liberal market economy. However, as the study shows, even in a liberal market economy, corporate directors need social networks to communicate and coordinate their strategic decisions: Corporate governance networks remain an irrefutable element of the daily corporate reality. Hence, the corporate elite shift its meeting network to private and informal circles.
Transnational private governance and its limits Jean-Christophe Graz and Andreas Nölke eds. ECPR Series on European Studies in Political Science Routledge 2007. Pre-order by clicking here
This book belongs to the latest generation of globalisation studies, which consider the relationship between states and markets as closely integrated and seek to broaden the scope of enquiry by including new patterns and agents of change on a transnational basis. It argues that that transnational private governance in the contemporary world faces tough limits on conceptual, empirical and normative grounds. In an attempt to overcome the divide between comparative and global political economy approaches, it offers a systematic, yet flexible framework of analysis to understand how the interplay of structural constraints and actor-based processes drive the evolution of transnational private governance with significant normative implications. The book offers a unique opportunity for probing the limits of transnational private governance in four distinct empirical domains:
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Other News Items
ARCCGoR input to German parliamentary debate on IASB
On November 30, 2006, the work of the International Accounting Standards Board was discussed in the German federal parliament, the Bundestag (see http://dip.bundestag.de/btp/16/16070.pdf for details). In the run-up to this debate, Andreas Nölke and James Perry were approached by the office of a Member of Parliament to provide their analysis of the IASB, including its private status and the substance of the shift in accounting standards which the organisation is implementing.
Call for papers: Governing the service economy - International standards from a political economy perspective
Sixth Pan-European Conference on International Relations ECPR Standing Group on International Relations (SGIR) University of Turin, Italy 12-15 September 2007
Convenors: Jean-Christophe Graz and Andreas Nölke For more information go to http://conference2007.sgir.org and see on Section 9
International Studies Association workshop on accomplishments and challenges in research on private authority and private governance in international affairs
Andreas Nölke will present a paper on Private Governance in International Affairs and the Erosion of Coordinated Market Economies in the European Union at the above workshop on February 27, 2007. The workshop is organized by Claire Cutler, Hans Krause Hansen, Virginia Haufler and Tony Porter. It aims to take stock of the exploding research on transnational private authority, ten years after the workshop that has lead to the landmark volume on "Private Authority in International Affairs".
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Our team has recently been reinforced by Gea Wijers who has been working for ARCCGoR since October as a research assistant. Gea is currently doing a Master's degree in Political Science at the Vrije Universiteit to add to the two others she already holds in Culture, Organization & Management (1997) and Art History (1998). Prior to joining us, Gea spent 16 months in Cambodia working as a management and communications advisor at the Ministry of the Environment in Phnom Penh. Previously, Gea has also worked as a project manager and advisor for, among others, the Boer & Croon Strategy and Management Group, STAD Advies and the City Council of Amsterdam.
Welcome to ARCCGoR Gea!
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Nölke, Andreas (2006): Private Norms in the Global Political Economy, in: Klaus-Gerd Giesen/Kees van der Pijl (eds.): Global Norms in the Twenty-First Century, Cambridge Scholar’s Press: Cambridge 2006, pp. 134-149.
Perry, James and Nölke, Andreas (2006): The Political Economy of International Accounting Standards, Review of International Political Economy, Vol 13 No 4
van Apeldoorn, Bastiaan and Horn, Laura (2006): The Transformation of Corporate Governance Regulation in the European Union: From Harmonization to Marketization. Working Papers Political Science (2006/04) Vrije Universiteit Amsterdam .
Wigger, Angela (2006): Towards A Market-Based Approach: The Privatization and Micro-Economization of EU Antitrust Law Enforcement. Working Papers Political Science (2006/05) Vrije Universiteit Amsterdam.
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Conference Reports
4th Convention of the Central and East European International Studies Association (CEEISA) ‘Reflecting on a wider Europe and beyond: norms, rights and interests’ University of Tartu, Estonia, 25 – 27 June 2006 Angela Wigger
The 2006 annual convention of the Central and East European International Studies Association (CEISA) took place in Tartu, Estonia’s leading university town - also secretly known as Estonia’s intellectual and cultural capital. It was the fourth convention in row, following previous conventions held in Prague (1999), Warsaw (2000), and Moscow (2002), as well as the joint ISA-CEEISA convention in Budapest (2003). The CEEISA has, since its foundation in 1996, grown from a regional academic organization in the discipline of international relations into a leading forum for the exchange of ideas – attracting a large number of renowned scholars and practitioners from outside Central and Eastern Europe. This year's convention was organized on the theme of ‘Reflecting on a wider Europe and beyond: norms, rights and interests’, which translated into more than 50 different panels broaching a wide array of issues that address the interface of European and International Relations studies. It should be mentioned that the warm welcoming of the convenors Eiki Berg (Executive Director) and Petr Drulák (Program Chair) and the wonderful hospitality of the CEEISA, complemented the setting of the Baltic midsummer and the venue of Tartu’s history-rich old centre with beautiful 19th-century buildings and parks.
Bastiaan van Apeldoorn and Henk Overbeek organized three linked panels on the common theme of ‘The Limits of Transnational Neo-Liberalism: a Crisis of the European and Atlantic Projects?’, which attracted a critical mass of interested scholars and generated fruitful and lively discussions, i.e. Panel 1: ‘Contradictions of the Neo-Liberal European Integration Project’ , Panel 2: ‘Transnationalization and Neoliberalism in East Central Europe‘, Panel 3: ‘Contradictions of Neoliberalism in Eastern and Southeastern Europe’ . Addressed from a critical vantage point, the three panels in particular highlighted the course of the neoliberal ideology of the current European integration project and its unfolding legitimacy crisis that has become visible over the past few years. In the context of the longstanding US hegemony in sustaining a neo-liberal world order, the question as to what extent and in what ways the wider transatlantic dimension still feeds into socio-economic governance of the European project stood central in the debates. The paper contributions can be downloaded by clicking on this link. For more information on the 4th CEEISA Convention, please visit: www.ceeisaconf.ut.ee
"IPE in Amsterdam" Workshop International Political Economy PhD Club Workshop Vrije Universiteit Amsterdam, 12 May 2006 Laura Horn
The IPE PhD club is a peer-teaching group set up at the Amsterdam School for Social Science Research (ASSR) but also attended by PhD students from the Department of Political Science of the Vrije Universiteit. Chaired by ASSR staff member, Brian Burgoon, the group meets every other week in the semester.
In addition to these regular meetings a special one-day workshop called ‘IPE in Amsterdam’ was held in May. The workshop programme started with an Introduction by Henk Overbeek, Chair of International Relations at the VU, and a roundtable in which senior members of staff gave their views on the development of ‘IPE in Amsterdam’. The first panel was on the ‘Transnational Politics of Competition Policy and Accounting’, with presentations by Angela Wigger, Hubert Buch-Hansen and James Perry. Following this, a panel on ‘National Welfare Systems and Developments in the Varieties of Capitalism’ saw presentations by Gerben Korthouwer, Barbara Vis and Eelke Heemskerk. In the third panel, ‘The Social Dimension of Global Business’, Luc Fransen, Stijn Verbeek and Jeroen Merk presented their work.
The workshop proved to be a great success with constructive discussions during the panels and afterwards. The PhD Club continues to meet every other Friday this academic year, and there will certainly be another day-long workshop in the coming academic year.
ESA Critical Political Economy Workshop ‘Beyond the Crisis of the European Project? The Political Economy of EUrope and the Political Economies in Europe in (post-)disciplinary perspectives’ Vrije Universiteit Amsterdam, 31 August - 2 September 2006 Laura Horn
This workshop took place in the framework of the Critical Political Economy Research Network of the European Sociological Association, which was set up in 2005 with its first meeting at the ESA conference in Torun, Poland. The aim of the Research Network is to provide a platform for scholars, both on the senior and the PhD level, to meet and exchange views on Critical Political Economy issues from a post-disciplinary perspective.
The Call for Papers for this workshop met with great interest when it was sent around in February 2006, and the participants had to be selected from a pile of interesting abstracts. To accommodate all the selected papers, we had to schedule a very tight agenda, but despite the demanding programme the discussions of the papers were fruitful and constructive. The panel structure included two more general panels on the dynamics of EU integration, two panels each on financialisation and the EU enlargement, as well as a panel on specific (social) policies and the discursive dimension of the integration process (please see the programme on our workshop website for details on the panels).
Participants were very positive about the coherence of the overall workshop, with all participants taking active part in all sessions. The ‘mix’ between established senior researchers and PhD students of every stage meant that the next generation of Critical Political Economists also had a chance to present their work to a critical audience. All members of the Political Science Department working in the field of International Political Economy took part in the workshop (with presentations by Bastiaan van Apeldoorn, Laura Horn, Henk Overbeek, James Perry, Arjan Vliegenthart and Andreas Nölke). All in all, the workshop has been a great success. We are grateful for financial support from the NWO, the NIG and the ESA.
Workshop ‘Rule-Making in the Global Economy – Between Power and Persuasion’, German Political Science Association Triannual Meeting, University of Münster, 25-29 September 2006 Andreas Nölke
A paper on the Private Governance of Global Accounting Rule-Making was presented by Andreas Nölke at the IPE group meeting within the triannual meeting of the German Political Science Association (DVPW). The meeting focused on rule making for international markets, including descriptions of rule making processes in specific markets; discussions of the role of states, corporations and NGOs in rule-making; and theoretical reflections on rule making in the global political economy. Empirical studies focused not only on accounting standards, but also on issues such as money-laundering, energy policy, tax competition, internet privacy and labour standards.
Wissenschaftliche Jahrestagung ‘Industrie und Finanzwirtschaft: Partner im Strukturwandel’, Institut der deutschen Wirtschaft, Cologne, 25 October 2006 Andreas Nölke
The annual meeting of the IW featured on the perspectives for cooperation and conflict between industry and finance within the German economy. Whereas most participants highlighted the strength of cooperation, the meeting also indicated quite some tensions between different economic sectors. Particularly representatives from the German ‘Mittelstand’ (small and medium scale enterprises, frequently managed by their owners) sometimes were quite critical of the financial sector, whereas representatives of the latter openly called for the reduction of the autonomy of ‘Mittelstand’ owners, to the advantage of cooperative autonomy (‘kooperative Selbständigkeit’) shared with the financial sector.
Conference ‘The Social Rule of Numbers’, organized by the Institut für Sozialforschung Frankfurt/Main and the Institut für Sozialwissenschaftliche Forschung Munich, Frankfurt/Main, 16-17 November 2006 Andreas Nölke
The conference on the Social Rule of Numbers proved to be a major event for the study of financial and management accounting within the social sciences. More than 20 contributions focused on issues such as the relation of calculation and capitalism, the sociology of calculative practices, the institutional and organizational field of accountancy, informatization and calculation, the globalization of accounting and corporate governance or the ‘new control’ of companies and public institutions. ARCCGOR member Andreas Nölke contributed a paper on the ‘Transnational Private Governance of Accounting Standards’, with a special focus on the question which social constituencies benefit and which are disadvantaged by recent shifts in the substance of accounting standards and the empowerment of the International Accounting Standards Board.
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AMSTERDAM RESEARCH CENTRE FOR CORPORATE GOVERNANCE REGULATION Department of Political Science, Vrije Universiteit Amsterdam Postal Address Visiting Address De Boelelaan 1081 Buitenveldertselaan 3-7 1081 HV Amsterdam 1082 VA Amsterdam The Netherlands Telephone: +31 20 598 6894/6852 Fax: +31 20 598 6820 |
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