Power and Responsibility Are Best Connected

“ With great power comes great responsibility”

This famous quote often comes to my mind in connection with investments.  In order to attribute it appropriately, I did a bit of research and discovered that it comes from… Spider-Man.  Imagine.  Nonetheless, it’s a great quote and apropos to the message of this piece.

Whether through retirement plans, individual accounts, or endowments, most investors have mutual funds and/or ETF holdings.  By using these vehicles, the fund companies (eg Vanguard, Templeton, etc) are inserted as Institutional Investors.  They vote on behalf of their investors on corporate issues, such as election of board members, compensation issues, and various other items in the annual or special elections.  Because they are stewards representing millions of investors and trillions of assets, they can be a powerful force in these corporate decisions.  Investors expect they will use this power responsibly.

It is for this reason that we were pleased to see the Investor Stewardship Group (ISG) formed early this year.  The ISG includes 38 of the largest US based Institutional Investors that in aggregate invest over $20 trillion in the US equity markets.  ISG recently established a framework for basic standards of 1) investment stewardship and 2) corporate governance.  While not legally binding, those who adopt the standards will build the confidence of their investors and enhance their engagement with the corporations in which they invest.

The stewardship standards include recognition of their accountability to investors, as well as the need for increased transparency of their voting records and governance oversight practices. They include disclosures regarding conflicts of interest, and standards for more productive engagement with corporations.  They also acknowledge the importance of their oversight of proxy advisory firms.

Recently, Vanguard issued an open letter to directors of public companies worldwide.  This letter refers to their Investment Stewardship program, and lists four governance practices which they evaluate. It specifically references gender diversity on boards as a way improve performance.  It is an illustration of productive communication on behalf of the “more than 20 million investors” they represent.

The standards for corporate governance also focus on accountability and transparency, and go further into board leadership and responsibilities.    While different, these standards dovetail nicely with the “Commonsense Principles of Corporate Governance” which were issued in 2016 by a number of well-recognized public company leaders.

The adoption of self-imposed standards serves as a positive signal for investors and builds public trust.  And yes, it connects power and responsibility.