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Ric Marshall

Ric Marshall
Corporate Governance Research (ESG)

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OWNERSHIP FORMS AND GOVERNANCE CONTROL

Just as the MSCI ACWI Index includes companies representative of a diversity of industries and equity markets, it also includes a diversity of ownership forms, ranging from fully controlled companies to those companies that are so widely held that their largest shareholder owns no more than 2% of shares. The chart below highlights this diversity as a percentage of current market capitalization.

 

MSCI ACWI Ownership Groups by Market Cap

 

 

The MSCI ACWI Index includes a wide range of ownership forms, just as it includes a wide range of sectors and domiciles, and each of these forms contributes its own unique combination of governance risks that can impact performance.

  • Principle‐agent concerns are primarily applicable to widely held companies with highly dispersed ownership, which currently comprise approximately 37% of the MSCI ACWI by company count and nearly half its total market cap.
  • For closely held companies, however, governance risk is primarily a function of the identity and degree of control wielded by the dominant shareholder.
  • Passive investing does not mandate passive ownership, as indicated by a growing commitment on the part of global asset owners and managers to both passive index investing and active shareholder engagement.

In all cases, a clear understanding of the relative strengths and weaknesses of the various ownership models and control structures presented by listed companies is an essential precursor to evaluating all other aspects of a company’s corporate governance.

Read the paper, “Ownership Forms & Governance Control.”

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