Some funds managers – but not many – have a long history of privately and, when necessary, publicly criticising misbehaviour or poor governance of listed companies. But they are probably not in the best position to, say, tell the board or senior management of a big bank that it should reduce its leverage and, by the way, cut your top remuneration packages in half or more while you’re at it. Super funds are in a far better position to take on corporations, including their funds managers, but this sort of activism takes effort, time and money. And according to at least one long-time governance activist, Robert AG Monks, it is unlikely that the war will ever be won without government intervention. Monks, the octogenarian warrior who spoke at last year’s AIST Global Dialogue conference in San Francisco, is the founder of Lens Governance Advisors, a law firm that advises on corporate governance in shareholder litigation, as well as being adviser to and shareholder in Trucost, an environmental research company. He published a paper in September which asks the question:
“Is there genuine commitment to an ownership-based governance system”. He says “no”. He therefore suggests two main policy initiatives: . There must be effective enforcement of existing law so as to require fiduciaries to take appropriate action to protect and enhance the value of portfolio securities, and . There must be arrangement for financing activism, either as an appropriate corporate expense or as a designated portion of the investment management fees. Monks believes that companies should pay for whatever additional costs are involved in improved governance and that index funds should perform the long-term role of stewardship.
“It might well be that this is the best answer, as what is wanted is both long-term stewardship and a perspective for the investment world as a whole, in contrast to individual companies,” his most recent paper says. Our two Nobel economics prize winners have also studied examples of economic endeavours not only by individuals or by institutions but also by communities. Some old fishing communities, for instance, without property rights to the fish, develop their own sophisticated governance systems to make sure the resource is not depleted over time. While Monks may be right that government action is necessary, in the meantime, super fund trustees and executives can always do a little bit more.