Managers Ignore Governance Issues
Byline: Ben Wright
Around half of UK fund managers do not take corporate governance issues into account in their investment processes, according to research published this week.The survey by Cubitt Consulting, the investor relations consultancy, and Equity Culture, a buyside research firm, found that fund managers' governance checks are inconsistent and strong-performing companies come under less scrutiny.
One respondent says: "It depends on the situation. If a company's doing well then you may well ignore more than where the company is doing badly."
The survey finds that most managers put more focus on factors other than governance considerations when constructing their portfolios.
Noga Villalon, investor relations partner at Cubitt Consulting, says: "Investors feel that most companies operate within a broadly acceptable band, and it is other criteria - notably quality of management - that determines their attractions as investment opportunities."
The research found that roughly 50% of firms did not factor into their investment process whether or not a company was complying with the relevant governance regulation. Respondents said regulatory breaches at companies were taken seriously only if it became high profile or pointed to more systematic mismanagement. This is despite numerous examples of breaches at companies that have only come to light after they have collapsed.
One fund manager says: "It is all about when things go wrong - it then becomes time-consuming but very important."
The findings pour cold water on champions of corporate governance, who have pointed to a series of recent high-profile shareholders revolts as evidence that corporate governance has become central to fund managers' work.
In May, shareholders of GlaxoSmithKline voted against board recommendations on the remuneration of the UK pharmaceutical company's top executives.
It was the first time in UK corporate history that shareholders have voted against directors' recommendations. …