Our hopes have been dashed

Are most of our large fund man­agers cap­tured?

Financial Mail - - BOARDROOM TAILS BY ANN CROTTY - @an­ncrotty

SA is be­ing let down by the fund man­agers who are sup­pos­edly look­ing af­ter our fi­nan­cial in­ter­ests. Th­ese days all but the su­per-rich must use pro­fes­sional fund man­agers to take care of their of­ten-medi­ocre sav­ings or pen­sion en­ti­tle­ments.

It is pos­si­ble for the very de­ter­mined to ac­tively man­age a small port­fo­lio but it re­quires con­sid­er­able know-how and lots of de­ter­mi­na­tion.

Like it or not, we’re forced to rely on the judg­ment of pro­fes­sional fund man­agers. We hope they will do what­ever they can to pro­tect and grow the value of our in­vest­ment. We hope they will act eth­i­cally and in so­ci­ety’s best in­ter­ests. While we are the ul­ti­mate “ben­e­fi­cial” share­hold­ers, they are the nom­i­nees and are in the driver’s seat.

It now seems all that hope is mis­placed. We have Pwc’s lat­est ex­ec­u­tive re­mu­ner­a­tion sur­vey to thank for point­ing this out (see page 9). PWC es­tab­lished that our big­gest fund man­agers were over­whelm­ingly back­ing the re­mu­ner­a­tion poli­cies of our big­gest com­pa­nies.

Corona­tion, In­vestec and Stan­lib were 85%-95% likely to ap­prove a com­pany’s re­mu­ner­a­tion pol­icy. This is the level of sup­port usu­ally en­joyed by cor­rupt dic­ta­tors. It smacks of a sys­tem that does not work.

Al­lan Gray was the only fund man­ager that ap­peared to ap­ply its mind to the is­sue; it sup­ported just 58% of re­mu­ner­a­tion poli­cies.

There are lots of rea­sons why we should be shocked by th­ese vot­ing records, not least of which is the pos­si­bil­ity that this may be how th­ese in­sti­tu­tions vote on all AGM res­o­lu­tions. If so, it means cor­po­rate gover­nance, which re­lies on ac­tive en­gage­ment by the nom­i­nee share­hold­ers, has made lit­tle or no progress. All the good in­ten­tions of suc­ces­sive King codes have been boiled down to box-tick­ing ex­er­cises.

The seem­ing un­will­ing­ness to en­gage on ex­ec­u­tive pay is con­cern­ing. Time and again we are told the ex­ces­sive pay awarded to the ex­ec­u­tives of listed com­pa­nies is jus­ti­fied be­cause they are “mar­ket-re­lated” and are ap­proved by that most crit­i­cal of con­stituen­cies, the share­holder.

Nei­ther of th­ese jus­ti­fi­ca­tions ever stood up to much scru­tiny. The so­called mar­ket is rigged by an army of re­mu­ner­a­tion con­sul­tants, re­cruit­ment agents and re­mu­ner­a­tion com­mit­tee mem­bers. They com­bine to cre­ate that “mar­ket” and en­able its play­ers to hide be­hind the term “mar­ket-re­lated”.

As for the like­li­hood that pow­er­ful fund man­agers might ex­er­cise use­ful over­sight over the process, that they might im­pose some dis­ci­pline; this seemed more wish­ful than re­al­is­tic.

But there was al­ways the hope th­ese peo­ple would act in the best in­ter­ests of their clients; that they would look be­yond the short-term gains from cosy­ing up to ex­ec­u­tives; that they would look be­yond the dis­com­fort­ing re­al­i­sa­tion that their own ex­ec­u­tives were ben­e­fit­ing from un­jus­ti­fi­ably large pay pack­ages.

Now we know: all that des­per­ate hope was mis­placed. With the com­mend­able ex­cep­tion of Al­lan Gray, it seems our large fund man­agers are as cap­tured as some of our politi­cians.

Al­lan Gray was the only fund man­ager that ap­peared to ap­ply its mind to the is­sue

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