Call on institutional investors to act

The International Corporate Governance Network (ICGN) is the global body representing governance practitioners. Many of Australia’s large institutional investors were present at this year’s annual conference, held in Paris on 12 to 14 September.

Among those addressing the main forum was Bob Monks. Mr. Monks pioneered much of the institutional shareholder activism being witnessed today, and commands significant respect in the international governance community. According to a couple of reports, his delivery of a powerful “call to action” brought many in the audience to their feet.

Monks asserted that the financial crisis has called free-market capitalism itself into question, and institutional investors are enduring criticism for “enabling the crisis through passive corporate governance”. Monks paper says: “Quite simply, you are under attack. Universal acceptance of a role for shareholders in corporate governance cannot be taken for granted.” He urged institutional investors to confront “powerful present realities” and live up to their fiduciary duties of protecting the “savings and dreams” of their trust beneficiaries.

Mr. Monks said that the ultimate issue might be survival. “If our system is to survive, top public fiduciary shareholders must be equally concerned with protecting and preserving the system itself.” He chastised those fiduciaries that simply choose not to function as stewards of the equity shares in their portfolios and asserts they are actually violating trust law. Such inaction has left the burden to a select few activist funds and has trivialised the concept of share ownership and the value of corporate governance. However, Monks explained, “Whether we live in a poor or an adequately financed society depends on the effectiveness of our system of corporate governance. Institutions must take the initiative to protect their relevance as a wealth preserving energy in a free society. They cannot wait for others, nor can they decline to act.”

Mr. Monks proposed that the ICGN become more assertive in speaking for ownership. He suggested an integrated educational and political action program to give shareholders a more powerful voice in current debates. This requires high-level legal, political and PR staff, equipped and funded to represent the collective international shareholder body and assert the rights of the real owners to hold corporate management to account.

However, before Mr. Monks’ ideas can be realised on an international scale, most countries have a lot more to do in their own back yards to develop a common voice before trying to get consensus at an international level. For example, Australia, which has more developed governance systems than many OECD countries, still has no effective mechanisms to allow for its various institutional investors to speak with one voice. Nevertheless, Mr. Monks’ speech is worth a read. See it HERE.

© Guerdon Associates 2024
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