Shareholder engagement has become more urgent as a result of the financial crisis, but a cost-effective strategy to accomplish responsible ownership goals still proves elusive to many pension funds, according to speakers at the International Corporate Governance Network midyear conference in London.
Institutional investors “need to think of solutions rather than inhibitions that prevent them from doing so,” Paul Myners said in a keynote speech. “Good governance is fundamental for better decision-making.”
Mr. Myners — financial services secretary to the U.K. Treasury and former chairman of London-based Gartmore Investment Ltd. — said: “The most profound shortcoming which we need to address … is the hidden cost of public ownership that results in inadequate stewardship.”
Money managers are currently rewarded for relative outperformance usually measured against a benchmark or peers on a short-term basis, so there's no incentive “to take governance seriously,” he said. Acting as owners requires pension fund officials to look beyond “a quick return in what too often is a zero-sum game,” Mr. Myners said.
Mr. Myners, among others at the conference, suggested institutional investors and their money managers devote more resources to add value to portfolio management through active engagement. For example, one contributor to the financial crisis was executive remuneration that failed to align interest with the long-term health of public companies. “Owners and shareholders are responsible for remuneration, not government,” Mr. Myners said.