Corporate governance is seen as critical for investment performance and plays a pivotal role in attracting investment with fund managers, Aberdeen Asset Management research shows.
The study gauged the opinions of 293 financial services decision-makers worldwide, including institutional investors, trustees, managers and consultants. It found 89% consider effective governance to be a key driver of investment performance, and 85% believe asset managers should engage with invested companies both before commitments are made and at regular intervals afterward – particularly in regard to remuneration, corporate actions and environmental and social issues.
Almost two thirds felt governance regimes were a better measure of risk and opportunity than traditional emerging/developed market categories.
However, respondents also rated poor governance as one of the biggest challenges companies faced, second only to tax regulations.
“The research makes clear governance has to be a fundamental part of what investors do day-in, day-out,” says Paul Lee, Aberdeen’s head of corporate governance.
“It’s all about asset managers understanding what they own and not being shy of having conversations with the companies they invest in.”
The findings also underline the importance of a long-term perspective in effective governance.
“A company is much more likely to talk to you if they don’t think you’ll sell their bonds or shares at the sight of one set of poor quarterly figures,” Lee says.
Despite this, several impediments to this approach were identified by the study, with 70% citing frequent performance measurement as a barrier to long-term strategy. Almost half (48%) believed regulations imposed short-term thinking and acting, with the proliferation of models and metrics particularly noted as a factor promoting short-termism.
Michael McCauley, a senior officer at the Florida State Board of Administration, says governance has been shown empirically to be a “risk mitigant”.
“Governance is a very significant and material factor within investment analysis,” he says.
“I think of it as something that is on par with a lot of other fundamental factors that can drive performance and value.”
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