Governance up the agenda for IR teams
“Governance” and “interesting” used to be contradictory terms for most IR people. However earlier this week, I went to a private lunch hosted by Tomorrows Company and Radley Yeldar (see my bio) which managed to combine both.
The point of the event was to allow a high quality group to debate the ‘stewardship’ of companies, and a potential disconnect of interests between ownership and the long term success of the company.
Tomorrows Company had produced an interesting perspective which graded degrees of stewardship, from the original founders of businesses with the highest degree of stewardship instincts, to speculators – members of the ‘casino’ economy, rather than the real one. The use of derivatives by these speculators to leverage investment without transparency has been an important contributor to this disconnect.
One of the key discussions centred around engagement with companies by (institutional) investors. We have recently seen cases of noted activists such as Knight Vinke joining up with traditional long investors to raise concerns with the companies in which they invest. However this is far from the norm.
Since few investors proactively seek to engage regularly with the companies they own, the discussion developed of how to communicate the governance values that companies subscribe to. Regulation is certainly not the answer, according to those at the lunch. And yet there is coming a need to defend comply or explain. The so-called Lecce framework – potential governance rules for companies across the EU – are due to be debated at the next G8 summit. And many other regulators are looking at their own codes, including the Walker Review, the FRC review of the Combined Code, the new Belgian Code, the PIRC calls for radical overhaul, the new Institutional Shareholder Committee governance recommendations....the list goes on.
However, in the meantime, how companies communicate their governance ambitions and culture is important. And difficult. One attendee told me that she was responsible for the governance section of her annual report, and that she had wanted to enhance it well beyond a simple set of compliance statements. However the company wanted to balance the information provided with the risk of “over complicating” their governance discussions with investors - and their proxy advisors.
By observation, many (most?) annual reports’ governance sections are formulaic and uninformative. A new best practice should evolve, which explains not only the compliance with the codes, but also the culture of governance within the company.
The point of the event was to allow a high quality group to debate the ‘stewardship’ of companies, and a potential disconnect of interests between ownership and the long term success of the company.
Tomorrows Company had produced an interesting perspective which graded degrees of stewardship, from the original founders of businesses with the highest degree of stewardship instincts, to speculators – members of the ‘casino’ economy, rather than the real one. The use of derivatives by these speculators to leverage investment without transparency has been an important contributor to this disconnect.
One of the key discussions centred around engagement with companies by (institutional) investors. We have recently seen cases of noted activists such as Knight Vinke joining up with traditional long investors to raise concerns with the companies in which they invest. However this is far from the norm.
Since few investors proactively seek to engage regularly with the companies they own, the discussion developed of how to communicate the governance values that companies subscribe to. Regulation is certainly not the answer, according to those at the lunch. And yet there is coming a need to defend comply or explain. The so-called Lecce framework – potential governance rules for companies across the EU – are due to be debated at the next G8 summit. And many other regulators are looking at their own codes, including the Walker Review, the FRC review of the Combined Code, the new Belgian Code, the PIRC calls for radical overhaul, the new Institutional Shareholder Committee governance recommendations....the list goes on.
However, in the meantime, how companies communicate their governance ambitions and culture is important. And difficult. One attendee told me that she was responsible for the governance section of her annual report, and that she had wanted to enhance it well beyond a simple set of compliance statements. However the company wanted to balance the information provided with the risk of “over complicating” their governance discussions with investors - and their proxy advisors.
By observation, many (most?) annual reports’ governance sections are formulaic and uninformative. A new best practice should evolve, which explains not only the compliance with the codes, but also the culture of governance within the company.
posted by Mark Hynes @ 5:45 am
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