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Shoes and Corporate Governance

I spent part of last night’s celebration party in the Isle of Man (IQE becoming the first people on the Island to become members of The International Stock Exchange) talking to an Insolvency Practitioner. I asked what was the most common cause did they see which leaves them to be appointed. The answer was poor Corporate Governance.

Its an interesting thought that the part that in the past has been asked the least about may actually inflict the most on the investor. A lot of time an energy may well be concentrated on understanding the risk, investment process and workings of the investment manager but at the same time little not a lot about the actual fund structure and its governance.

This is one of the reasons why I was involved for AIMA in taking the first steps to set up a DDQ for Fund Directors and also reviewing the Guide for Fund Directors. Its so important that the Board is not just there to oversee on the nod what is taking place but actually work to understand and be incisive in asking questions on what is going on.

How often when carrying out a due diligence review do investors actually talk to one of the Board. Be it the Chairman or a nominated Board Member. I still think by my own experience it is very few. Likewise independent of the Manger how often do the Board talk to the key investors in the Fund about what they see is going on. Pressure is coming for transparency which has been reflected by some Boards now requesting change. This is reflected in the growth in the Independent Depository (look at INDOS Financial) rather than a combined Administration and Custodian Model. What I also anticipate that under MIFID II there will be rapid growth in the provision of Independent Risk Reporting (look at Clarus Risk) adding to the level of substance that a Board can review to ensure what is in the prospectus in theory is happening in practice. It does add to the Directors work load but quite frankly that is what I am retained to do.

I am yet to be asked by anyone how does the Board function in between meetings. How often are you called upon to approve matters in between meetings. Do you ever, as part of a Board, use the discretion given in the prospectus for any reason. Do you allow small committees to make major decisions in between meetings etc. As we all know not everything can wait for the next formal review around a table.

Poor governance and oversight only breeds bad habits. Bad habits breed a lack of focus by participants. Let us all work harder to ensue higher standards.

By the way they were great luminescent pink high heels.

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