Assessing Control: Measuring And Assessing The Alignment Between Economic Exposure And Voting Power At Controlled Companies
categories: ESG Products & Services, Investing (Investment Management), Portfolio Construction and Optimization, Responsible Investing, Asset Owners, Hedge Funds, Equities, Research Paper, Asset Managers (Quant or Fundamental), BRETT Alan, general
Where the controlling owners of a company have voting power that is disproportionate to their economic exposure, the company’s minority investors face some degree of increased risk. MSCI ESG Research’s ownership model enhances the ability of minority investors to assess ownership-related risks or benefits across two dimensions; it measures the level of control, and illuminates the motivations of the controlling entities. We extend this model by adding a third dimension, by measuring the extent to which economic exposure and voting power are disproportionate, regardless of the control mechanisms involved. This new framework could assist investors in assessing governance risk or in prioritizing company engagements.