Corporate Governance: A Fund Manager’s Responsibility?
Published - 21 May, 2019
Issues of corporate governance have received major attention in the media for some time, and were recently reinforced by the Steinhoff saga, in which the company’s management team was found to have acted fraudulently. Could these “accounting irregularities” i.e. fraud, have been avoided? Some think so, but how?
An increasing call has been sounded for a bulk of the responsibility to lie with fund managers with regards to the funds for which they are the custodians. Fund managers are being called to take so-called ESG aspects, that is environmental, social and governance factors into account, when investing and voting on contentious corporate issues, as they effectively are the ones best placed to hold company management teams accountable.
Several recent South African corporate failures have had hefty price tags for both pension funds and individual households. These failures have arguably been in large part due to environmental, social and governance catastrophes in these companies.
Fair and Right
South African fund managers have in the past either sided with company management or, frequently, refused to participate. Those days are over. The recent erosion in value that has resulted from a cavalier attitude to corporate governance is staggering and amounts to R375bn in the case of Steinhoff alone, according to All Weather Capital’s chief investment officer, Shane Watkins. He was opining on the issue of Shoprite chairman, Christo Wiese’s plan to dispose of high voting deferred shares in Shoprite for R3.5bn. Wiese acquired these shares back in 2000 for 1c.
Watkins has asserted that any proposal brought about to fix what has become a contentious issue among Shoprite stakeholders must not only be legal but must also pass the test of being fair and right. He has said that barring significant changes in the current proposal, All Weather Capital will vote against it.
Fund managers now need to apply their minds and ensure any solution they vote to support meets the highest standards of corporate governance. The idea that corporate governance issues are just as important as bottom-line of financial issues, will no doubt bring a move towards a more fair and just investment environment.