Companies need good stewardship in addition to good corporate governance
Editor Tim Charlton sat down with Stewardship Asia Centre’s CEO Mr Ong Boon Hwee to understand what it means to go beyond leadership for a firm’s sustainability.
markets to invest in rather than individual companies, a trend that has gained momentum post-crisis. In the case of a passively managed fund, the portfolio manager may not have as much keen interest in the running of any one company especially if the mandate is to simply match the index.
Low-cost funds even do away with active fund managers, and instead rely on algorithms to balance the portfolio. But when the computers are doing the investing, the question becomes who is engaging with the board on behalf of shareholders to ensure the company is being run, or “stewarded”, with the longterm interests of shareholders in mind. It is this lack of connection between shareholders and management, which gets extended even further when many fund managers outsource management decisions to proxy companies, that is a key concern for Mr Ong. “Some funds don’t even deal with the companies, they just give decisions to the proxy companies, so you get a fragmentation of ownership and many layers between the shareholders and the board,” Mr Ong said. “Perhaps institutional investors would want a 10% shareholder to take a stake with a board seat but not control so that they can better affect stewardship over the company,” he added.
We need to look at the values that drive companies and how to ensure that the shareholders have the correct understanding of the long term view.
Articulating principles of stewardship
The industry-led Singapore Stewardship Principles (SSP) for Responsible Investors initiative was introduced in November 2016, supported by the MAS and the SGX, with the aim of articulating principles of stewardship which can supplement more traditional concepts around corporate governance. One thing Stewardship Asia Centre would like to see more of is the concept of giving a board a mandate from shareholders rather than relying on them to pick the best strategies on their own. The mandate concept would establish what the board’s ambitions and risk appetites are, and what its purpose is, so that they can better represent the interests of the shareholders.
There is still much work and research to be done in what defines good corporate stewardship, as opposed to good corporate governance, but it is an area that the Stewardship Asia Centre is continuing to work on to ensure that businesses are running for the longterm benefit of the shareholders. Ultimately good stewardship comes down to values. “We need to look at the values that drive companies and how to ensure that the shareholders have the correct understanding of the long-term view to benefit and sustain not just the current generation but also future ones.”