Governance is critical to driving company value

Corporate governance is a critical factor in understanding company value and it drives investment performance according to a global survey of 293 financial services decision-makers commissioned by Aberdeen Asset Management.

Corporate governance emerged as the most important matter on which asset managers should engage the companies in which they invest, with strong support also for engagement on remuneration, corporate actions and environmental and social issues.

The overwhelming majority (85%) of the sample of 293 decision-makers said that asset managers should engage with the companies in which they invest client funds both before investments are made and at regular intervals subsequently. Respondents agreed that poor governance was the biggest challenge faced by companies after tax regulations.

Several impediments to long term investment emerged from the research with 70% of respondents citing a short-term environment where performance is regularly measured against peers as a barrier to a long termview. Nearly half (48%) believed regulations also forced short-term thinking and acting, while the vast majority believed that there were sufficient investment models and performance metrics available to support long term investing. Indeed, one factor identified as promoting short-termism was the proliferation of models and metrics.

The research, conducted by Gabriel Research & Management Ltd., and commissioned by Aberdeen Asset Management, surveyed a total of 293 decision-makers around the globe, including institutional investors, trustees, managers and consultants across the financial services industry, corporate and not-for-profit sectors.

In the UK short-termism was identified as a key issue in the 2012 Kay review of investment in the UK equity markets. The UK government and investment industry has been looking at ways to tackle this to improve economic performance.

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