A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
‘Fearless Girl’ takes stewardship to a new level
State Street Global Advisors published its annual “Stewardship Report” last week. It is worth a read to help get a better understanding about the ESG tsunami washing over our industry. There is now no doubt: ESG management makes money. If you don’t have a strategy, please hand in your license.
Most recently famous for coming up with what may be the best publicity stunt the funds management industry has ever seen – Wall Street’s ‘Fearless Girl’ – SSGA says it has been increasingly looking at evidence-based support for ESG principles, such as what it means to have more women on company boards and among their senior management.
This is what ‘Fearless Girl’ is all about. As a big index manager – as well as an active manager, global custodian bank, FX and cash manager, and all the rest – SSGA invests in tens of thousands of stocks globally and, through its global “asset stewardship” team, run by Rakhi Kumar out of Boston, increasingly engages directly with them on governance and other issues – including the ‘E’ and the ‘S’.
Kevin Anderson, SSGA’s head of investments, Asia Pacific, based in Hong Kong, said on a regular visit to Australia last week that “engagement” was not just about voting at company meetings.
“It’s about talking to companies and their boards and explaining our views, as investors,” he said. “We have engagement with many many companies. But we don’t view ourselves as adversarial activists. And we are not looking for short-term results. We are in it for the long term. We use our vote, such as with director appointments or re-appointments, only if necessary.”
Anderson said that the independence of the board was very important because it was a part of board “leadership”. And an important aspect of that was the tenure of directors, an issue which has surfaced among big super funds, where trustee directors have stayed on for more than 10 years or longer.
The ASX guidelines for listed companies, for instance, suggest 10 years as an appropriate use-by date for their directors. However, some super funds have directors who have been on the board for more than 25 years.
Anderson said that there was no hard-and-fast rule about the number of years which were optimal for a director to serve. There were three main factors for boards to consider in this regard, he said: independence; refreshment; and, the ability of the board to understand risks.
“We engage with companies in more than 80 markets,” he said, “and a lot of their exchanges have riles and guidelines… But there are some things about board governance where it is difficult to gather or store information, such as ethnicity.”
While it was clear that companies with more women directors behaved in a different – generally better, more sustainable – fashion, to the benefit of shareholders, it was difficult to ascertain how they performed on other parts of the diversity spectrum.
It is generally considered that having directors from ethnic and social backgrounds which reflect a company’s customer base is good for the business. But gathering that information is not easy.
SSGA celebrates all aspects of diversity,” Anderson said. “We ask companies about their diversity strategies and practices… The executive management [where information on diversity is also more difficult to come by than with boards] our aim is to ensure effective broad leadership. But there are a lot of other metrics to do with governance to consider.”
Debt issuance by the company, which may indicate excessive leverage, and the remuneration of executives and directors, are among such considerations.
“If you don’t have the ‘G’ you are less likely to be able to create outcomes which are good also for the ‘E’ and the ‘S’ too. Good governance, with a strong risk management program is just the start which leads into the others.”
Note: ‘Fearless Girl’ is the bronze statue of a young girl placed, by SSGA’s advertising agency, in the dead of the night in front of Wall Street’s statue of a rampaging bull. She stares the bull down and has subsequently become a global symbol for gender diversity among companies. SSGA wanted to send the girl off on a tour of the world, but the New York City Council asked the company to keep her there for at least a year – she is quite the tourist attraction too.
