Anne Simpson

Guarding the Guardians - Investor Governance Dilemmas of Ownership and Control

A Business Research Hub seminar

Anne Simpson, Director, Board Governance & Strategy, CalPERS, will talk on responsible ownership.

There has been a transformation in the ownership of companies - in both public and private markets. Individuals are no longer the dominant shareholders, and their place has been taken by investment managers who now control the ownership of many companies, through investing the money of others. This poses a new and challenging governance question. If shareholders are the guardians of the corporation’s prosperity and impact on society, then who is guarding the guards?

The intermediaries who control, but are not the owners of, companies have different incentives to the underlying owners. One feature is differing time horizon (Intermediaries work on performance targets which at best stretch 3 to 5 years, owners’ liabilities are measured in decades), another pressure is fees (where downward pressure and market efficiency have driven passive investment), a third dilemma is the twin roles that investment managers face in dealing with their own shareholders whilst managing the shareholdings of their clients. Responsible ownership requires alignment of interest between owners and controllers over periods, fees, to cover costs of engagement and measures for addressing potential conflicts of interests. Other disincentives to responsible ownership include extensive diversification ('reckless prudence' says Bob Monks) where the costs of responsible ownership are outweighed by the economics of small holdings that cannot justify research and engagement expense.

Anne Simpson will be discussing the example of climate change to illustrate responsible ownership, examining the public voting records of the largest fund managers, in light of their stated support for the Paris Agreement and propensity to vote against fellow shareholder proposals (typically filed by asset owners). The final part of the seminar will focus on potential solutions. Setting clear expectations for investment managers, embedding proxy control with the owner, including over stock lending, bringing accountability to the asset gatherers (oversight boards for mutual funds?), revisiting performance fees on time horizon and sustainability metrics around outcomes.

Limited spaces are available for this event. If you would like to register your interest, please send your full name and affiliation to helen.fletcher@sbs.ox.ac.uk