TIAA-CREF warns against outsourcing governance thinking

Long-term investors with a focus on overseeing their investments will play a vital role in improving governing practices of companies in which they invest, which can in turn help to avoid future financial crises, according to a new policy brief released today by TIAA-CREF.

TIAA-CREF is the New York-based $402 billion retirement plan for the academic, research, medical and cultural field and which has a highly-regarded track record in the governance space. Their new briefing, “Responsible Investing and corporate governance: lessons learned for shareholders from the crises of the last decade,” has some timely guidance for shareholders:

Monitor Effectively: investors must engage and monitor their investments effectively and constantly. Moreover investors must refrain from a focus on short-term investment performance rather than their more encompassing stewardship and ownership responsibilities. In doing so, investors would be best served not outsourcing this function to third parties who may not have their same time frames or agendas.

Stay Engaged. Investors must engage with companies on governance and long-term performance issues in order to help protect and enhance the value of their holdings. For universal owners, the “Wall Street Walk”1 or simply selling stock in the face of inadequate performance is not the most attractive option. In active as well as passive segments of portfolios, investors should be vigilant in trying to prevent problems before value is lost and it is too late to sell, or increasingly difficult or expensive to address.

Exercise Rights Responsibly: Investors should exercise their rights responsibly to ensure companies are well managed and positioned to drive long-term value.  They should vote their  shares diligently, recognizing that they are a valuable asset, and a primary means to communicate with the company and other shareholders. Investors should not blindly support management, and should dedicate appropriate resources, including senior management, to proxy decisions.

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