Alastair Ross Goobey is one of the U.K.'s higher profile money managers and is considered the leader of the "awkward squad" of institutional investors that publicly and privately challenge corporate boards on governance issues. He is stepping down from Hermes at the end of the year, but is in discussions with a number of U.K companies about being appointed chairman. He talks to reporter Beatrix Payne about his successes as a corporate governance agitator, how U.S. pension plans could be doing more in this area and the impact myeloma has had on his life since he was diagnosed with the bone marrow cancer in late 1998.
Q Were there any seminal experiences that led you into corporate governance work?
A My father was a fund manager (George Ross Goobey, former manager of Imperial Tobacco Group PLC Pension Fund was renowned for encouraging U.K. pension plans to invest in equities) and (had a) liberal, non-conformist, East Anglian background. That sort of rather puritanical streak has come down through the generations. In my investment life, the collapse of Rolls Royce in 1971 was pretty important. It was governance that had failed at Rolls Royce. Bad governance is often a symptom of much deeper malaise in a company.
One of the points that a lot of company directors make to me is that if you are overdogmatic, you will lose entrepreneurial flair. In our experience, too much entrepreneurial flair is often a euphemism for too much centralized power and too little control of risks or individuals. I think the big failures of the last 30 years that I have seen have to do with that.
Q Why are you leaving Hermes, and what's next for you?
A Quit while you are ahead, before people ask you when you are going to go - I believe in that. Refreshment at the top of companies is very important and people who stay around too long become part of the problem, not part of the solution.
The one thing I won't do is investment management. I think of Hermes as my baby. I won't do anything after Hermes that will conflict with Hermes. I don't think I have an idea of a particular company that I would like to work for, and if I did I don't think I would dare say. In a good number of cases I suspect the executives would say to the idea of me becoming chairman: "Anybody but Ross Goobey, because he will stop me making a lot of money." Which is completely unfair, we can cope with people making a lot of money, but please can they earn it first before they get paid?
Q What has been your personal best success?
A Creating the Focus Funds has been enormously satisfying. In governance terms, I will always be associated with the campaign against long rolling contracts (for senior executives). At the time, the reaction of many of my peers at fund managers was "yeah, well, absolutely, but you won't get anywhere and I am afraid we can't go public to support you." ... We gradually began to win converts and then we had the Greenbury Committee, which recommended these contracts should be reduced and that best practice was (contracts for) one year.
Q What would be the next widespread corporate practice that you think should come under greater scrutiny?
A One of the things that I am being asked to do is to chair the International Corporate Governance Network's committee on remuneration. I have been trying to get some international agreement among institutional shareholders about what are acceptable remuneration structures. It is not that executives are badly paid, but that they are paid badly. I think the particular problem stems from share options. We believe long-term incentive schemes should be based on real shares, so that the executive suffers on the downside as well as gains on the upside.
Q Why has corporate governance activism been relatively muted in the U.S.?
A The public sector pension schemes in the U.S. have been quite interested in this. The private sector plans have not, because it comes down to the trustees criticizing their own management, or it may be that the management is benefiting and there is a conflict of interest. In the U.K., pension funds by law have to have an element of member representation. And I think that has helped separate the pension trust clearly from the sponsor company.
(U.S. law) is not as favorable to shareholders as it is over here. For instance, we can requisition an emergency general meeting of any company provided we can get the consent of more than 10% of the shareholders. At that meeting we could theoretically vote off the whole board. In the U.S. you can't do that.
Q What should U.S. pension funds be doing as shareholders?
A I would like to think that trustees of private sector pension schemes in the U.S. would demonstrate their independence from their sponsors rather more than they have done up till now. A member lawsuit against a trustee at some stage might be a salutary way of doing it. I don't think anyone has been forced to be clearly independent of their sponsor company through the pension scheme. I think that would be the test.
Q How has your battle with cancer changed the way you do things?
A Very little, actually. When I was diagnosed I did say: "Well, what do I want to change in my life? Will I go and climb mountains or go up the Orinoco (River)?" I determined that actually what I really liked was my family, my work, my colleagues, my recreations, which include music.
I think it was a wake-up call to the fact that no one is immortal. I think these sorts of shocks are devastating at the time. But my experience of talking to other cancer patients is that most people get on with things for as long as they can and hope that they are one of the lucky ones that things will work for. More and more of us are lucky in the outcomes, but far too many people still die of cancer. Agonizing how you got a disease like cancer is a waste of time; in my case I have absolutely no idea why. My bone marrow started producing rogue proteins. But I just count my lucky stars that the treatment was successful and I can just continue as I was before.
Q In 2000 you were awarded the order of Commander of the British Empire. Why?
A They said for services to pensions. Because I have been a noisy advocate of governance I have probably become better known than my peers. But it should have been my father who got one really. He absolutely changed the investment power of pension funds by investing in equities. He never got anything, so I take it for the Ross Goobeys, both of us, rather than just me.