ICGN conferences are a great place to network with others in the field of corporate governance from around the world. The 2010 conference in beautiful Toronto Canada was no exception. I’ve reported on day 1 and day 2 of the topical sessions. Now time to cut loose a little.
The best example of that, within the context of the whole group, was a bit of a celebration at the Royal Ontario Museum. Tops in entertainment was “illusionist,” Brian Michaels. One trick involved a guy from the audience and, of course, a beautiful assistant tied up.
…And there was the jacket, on the assistant. Time to get untied.
Another illusion involved a woman from the audience who verified use of an ordinary tissue, which was then made to spin in the air with no visible means of support. Maybe you had to be there.
With ICGN being held in Canada, they brought several famous hockey players up on stage, along with a couple of Mounties and a woman with a great voice who sang the national anthem. Then the icing on the cake, with three of our Canadian hosts being presented with hockey jerseys. All had Wayne Gretzky’s number 99 and their own names on the back, with our “team” name, ICGN, on the front. They’ve skated to glory!
I had a great time networking with dozens of people I had previously only met via e-mail. One of these was Alex Todd. He authored a chapter in the forthcoming book, Corporate Governance: A Synthesis of Theory, Research, and Practice (Robert W. Kolb Series). Todd proposes “Aspirational Corporate Governance,” building on the work of Shann Turnbull and others. The ACG framework specifies three aspirational conditions for good corporate governance:
- Requisite organization handles information complexity.
- Requisite variety in information from stakeholders reduces uncertainty.
- Adaptive capacity provides response mechanisms to compensate for stakeholder uncertainty.
Todd goes on to create a diagnostic tool for measuring and analyzing these (existing and prospective) principles and practices as well as a blueprint for improving the design of any governance system. He groups governance styles into four broad categories that correlate with distinct business performance metrics:
- Control – management-controlled companies have better sales growth performance;
- Trust – companies with corporate governance practices that help shareholders establish trust enjoy higher valuations (Tobin’s Q);
- Sovereignty – companies with truly independent boards, both from management and shareholders, are more profitable (return on equity and profit margins); and
- Influence – companies with boards that are strongly influenced by management and where shareholders have fewer rights pay out more to shareholders in dividends and stock repurchases.
Read more in his article, Corporate Governance Best Practices: One size does not fit all. He recently revisited his research findings by tracking the stock performance of a small sample of companies with each of the four governance styles over the past two years and found distinct patterns in stock price performance associated with each of the four governance styles. However, the results were markedly different from the original study. This time, during the recession, issuers with the Management Controlled Board style had the worst stock performance and were by far the most likely to become delisted, while issuers with the Management Influenced Board style delivered the best shareholder returns, largely due to their tendency to pay dividends.
Todd appears to be on to something applicable to both structuring funds and, of course, in advising corporate boards.
Another fellow I got to meet was David R. Koenig, who recently launched The Governance Fund, LLC, a private investment management firm that uses a proprietary model of corporate governance based on several data-sets to capitalize on what he terms “the value gap” between well-governed and poorly governed companies. They’ve back-tested ten years of data and have been sending out model portfolios to potential clients so they can see that development isn’t based on cherry-picked after the fact correlations. I note that one of ICGN’s co-founders, Jon Lukomnik, the founder and managing partner of Sinclair Capital, LLC, has joined the Investment Committee of The Governance Fund, LLC, and will serve on its Board of Directors.
I see Koenig was also interviewed in the recently published book, The Hedge Fund Book: A Training Manual for Professionals and Capital-Raising Executives. You can peek inside the book at Amazon and see something about the fund’s unique characteristics. For one thing, the fund’s compensation is based on both risk and return. That’s very unusual and should serve them well, since the recent meltdown seems to have incentivized money managers to take excessive risk for short-term gain. Another feature is transparency of all positions and trades executed to investors willing to sign nondisclosure and intellectual property agreements.
Another unique characteristic is their Governance and Risk Advisory Board, which meets on a quarterly basis. The minutes of their review of the governance and risk management practices of the investment manager is made available to all investors as one method of providing enhanced transparency. Members include the following:
- Dr. Robert Mark, former Chief Risk Officer, CIBC and 1998 GARP Risk Manager of the Year, Managing Partner, Black Diamond Risk Enterprises, LLC
- S. Jean Hinrichs, former Chief Risk Officer, Barclays Global Investors, 2003 Buy Side Risk Manager of the Year (BGI)
- Dr. Don Chance, James C. Flores Endowed Chair of MBA Studies and Professor of Finance, Louisiana State University
- Dr. Robert Kolb, Professor of Finance/Frank W. Considine Chair of Applied Ethics, Loyola University
- Dr. Joseph Swanson, Clinical Professor of Finance, Kellogg Graduate School of Management, Northwestern University
Of course, I’ve had a strong interest in this subject for years, posting some thoughts on the idea of a Corporate Governance Mutual Fund in 1996, so I’ll be eagerly following the progress of the Governance Fund.
I also got a chance to learn a little about EIRS (Experts in Responsible Investment Solutions) from Peter Webster. I’m particularly interested in their ESG proxy voting service, which can help funds actively implement UN PRI or other principles into ownership policies and practice. See their one of their latest briefings on the risks of bribery.
Vindel Kerr, who I first met at a conference in London at the 6th International Conference on Corporate Governance (ICCG), is busy on a second edition of his book Effective Corporate Governance: An Emerging Market (Caribbean) Perspective on Governing Corporations in a Disparate World.
During one of the lunches, I got a chance to meet Anne Kvam with the Norges Bank Investment Management. They make CalPERS look small but don’t seem as far developed with regard to corporate governance… or maybe it is just those mild Norwegian manners. For example, they’re against “say on pay,” reasoning that’s the job of the board. Fine, if you can actually hold the board accountable… which I don’t think we can in most instances in the States. NBIM does appear very progressive regarding social issues. For example, see Pension funds urge chocolate industry to end child labour. There’s a good deal of transparency on their site and I look forward to paying closer attention to their ESG efforts.
Too many others to mention but I must say I’m looking forward to a possible visit to India in the fall and looking up Dr. YRK Reddy, who I’ve been in touch with for many years, and others if they are available during my stay. Well, until we meet again.
Other finds at ICGN:
- The Rotman International Centre for Pension Management (ICPM) publishes the Rotman International Journal of Pension Management in partnership with Rotman / University Toronto Press twice a year. To sign up, simply email firstname.lastname@example.org. Be certain to include your name, organization, and email address along with a subject line that reads RIJPM Subscriber Request. Great articles by some of the top researchers.
- Barroway Topaz puts out a quarterly client newsletter that can be downloaded in pdf format.