The market is dead, long live the market

Nick Hassel in The Times commented earlier this month: “The stock market has been declared dead many times before. We heard this in 1979, in 2003, and are hearing it now in 2009. The consolation is that, on those two previous occasions, the desire to obituarise was just another sign that shares had touched their low.”

Maybe so, and perhaps that accounts for the emergence of guidance notes aimed at educating pension trustees about their wider responsibilities as investors. One such paper comes from the aptly named Marathon Club arguing that trustees are not only responsible for  member benefits but also are significant owners of economic activity.

The Marathon Club’s recent paper on responsible ownership, written by Tim Currell and Donald MacDonald contains a number of helpful suggestions for trustees encouraging them to reflect on the wider aspects of responsible and on evaluating agent activity. MacDonald is well placed to offer this timely advice being chair of UNPRI and a trustee to the British Telecom Pension Scheme. The guidance is clearly written and well argued and asks what for some might be tricky questions. There are two which strike me as being particularly relevant:

  • Why, if it is common sense, have most UK schemes been slow to embrace the principles of responsible ownership? and
  • Why is it so hard for trustees to track what their agents are doing in these areas?
MacDonald argues that more work is needed, but how long will that take? Manifest has been involved in the governance world since December 1995 and while we have certainly see many positive developments; what is striking is the glacial pace of change in ‘traditional’ spheres of finance and the acceptance of long-term responsibilities.
For all the talk of Engagement and Voting, it still falls to a relatively small minority of forward thinking investors who have put considerable resource behind their governance programmes. Just at the time their warnings and predictions are being taken seriously they find that their resources are being savagely cut.
Manifest was soundly chided yesterday by a market contact, uncomfortable with the suggestion that we should have examined the voting record at UK  banks as a marker for engagement and oversight. The concern was that the confrontation that negative voting created would sour the investor/company relationship. Not everyone feels comfortable with confrontation, indeed good relationships don’t have to be based on such an approach. Ultimately if shareholders aren’t prepared to vote their views as well as state them, isn’t it a bit like continuing to give a bad employee and good appraisal rating every year?
Warren Buffet once said: “You pay a very high price in the stock market for a cheery consensus” , it looks like we are indeed paying a very high price for the cheery consensus that governance is somebody else’s responsibility.

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