The premise of the article itself is straightforward, using the example of recent events at WPP (and the departure of Sir Martin Sorrell for alleged “personal misconduct”) to make the case for shareholders taking action at the company’s upcoming AGM. The article goes on to note the tendency of investors to be “supine” in such circumstances, citing a number of other instances where shareholders have failed to act despite controversies around remuneration, mis-selling or questionable payments to third parties.
Yes, the WPP example is perhaps an extreme one and might not have gained such attention had a less prominent individual been involved. Yet it matters, as does the central thesis of the FT’s article. Why? Simply because it is indicative (of at least for potential) of an investor base being more aware of these issues – in no small part due to traditional and social media – and their ability, if not responsibility, to act and redress the balance when the situation calls for such action.
For asset managers, this trend potentially poses some interesting questions and even challenges. Many active managers, particularly those in the long-only space, have historically expressed their dissatisfaction with investee companies by “voting with their feet” and either reducing or selling out entirely of positions; passive managers, meanwhile, have utilised a variety of screen techniques and metrics to assess corporate issues and adjust their positions accordingly.
So far, so good. But what if the investment world follows the direction the Financial Times article indicates – namely that investors, of all shapes and sizes, should not just either accept the status quo or sell out of their holdings, but rather can (and maybe should) press for real change within the companies they have put money into.
Suddenly, the picture is much less clear. Is the traditional “voting with feet” approach still sufficient, or will clients demand active managers to do more with respect to direct and critical engagement with holdings? And perhaps more pertinently, given its sizable growth in recent times – what of passive? Are the models and metrics employed by quantitative managers sufficient to respond to this type of investor appetite and, at the very extreme, is passive management fit for purpose in such a context?
All of this is of course very theoretical, but the FT’s analysis should offer some food for thought. One thing is for sure, in this digital age where there is little place to hide, corporate governance is not going to disappear as a topic anytime soon.