Amsterdam,
04
April
2016
|
11:41
Europe/Amsterdam

OPINION by Danielle Melis. Stewardship: modern myth or paradigm shift?

Stewardship: modern myth or paradigm shift?

Summary

SHIFT TO is intended to inspire those who want to lead by example. Danielle Melis does exactly that by encouraging society to profit from the wealth of insights that Academics can provide in the area of ‘stewardship’.

When discussing long term vs. short term investing, your initial mental image might feature greedy shareholders selfishly maximising their returns at the expense of the company and its other stakeholders.

Honestly we passed that stage some time ago. Let’s take a moment to look at the broader perspective of ‘stewardship’. This is the notion of Joe Average, ultimate beneficiary of a pension fund, having his pension premiums ‘stewarded’: managed by his pension fund which invests this money on his behalf, in various asset classes by asset managers who aim to achieve a solid return over the long term.

In service to this vision, improved shareholder rights - and the encouragement of institutional investors to exercise these rights responsibly to contribute to long term value creation for all stakeholders involved - has accelerated into an increased number of codes and guidelines for institutional investors to (re)consider their shared responsibility for corporate governance (and societal impact) by listed companies.

Using academic insights to unravel behavioural ‘fails’

Despite the policies, codes and guidelines set to help ‘stewardship’ prevail, institutional investors apparently still do not always behave ‘as desired’ in the role of shareholders in investee companies. Why?

Academics can provide society with a wealth of insights that deserve attention in the area of ‘stewardship’. And perhaps it is time to take a step back and reflect on the fundamental assumptions on which institutional investor ‘stewardship’, as prescribed in corporate governance codes and facilitated by laws, is based. What can be learned from the history of listed companies and the very notion of being a company in the first place, or from Nobel Prize-winning economic theories about the role and functioning of organisations? What about the wealth of scholarly legal research or the research of philosophers and ethicists?

SHIFT TO by sharing knowledge

That is exactly what SHIFT TO is about: sharing the knowledge that enables us to shift the paradigms of our current thinking. Knowledge not only from the usual suspects, the practitioners, but also from policymakers, academics, lobbyists, and other stakeholders who benefit from long-term instead of short-term capitalism. SHIFT TO offers such a knowledge sharing platform, and contributes substantially by being the ‘filter that creates focus’ for those investors (asset owners as well as asset managers) who really want to move towards a change in their investment approach. SHIFT TO is intended to inspire those who want to lead by example.

I am proud to be part of this great initiative. In my research I start from the notion that corporate purpose defines corporate strategy - and in order to deliver upon this strategy, a company needs to have a system in place, corporate governance, that provides direction in achieving its goals. I focus on the role of capital markets in corporate governance. In particular, the notion of institutional investor stewardship.

My research indicates: For ‘stewardship’ to occur, a paradigm shift is indeed needed. One that moves us from an environment in which

  • institutional investors’ practices are assumed to be homogeneous,
  • the differences in prevailing legal frameworks are ignored,
  • and the prevailing theoretical perspective is that institutional investors are free to act according to self-interest;

To an environment in which

  • institutional investors’ practices are acknowledged as heterogeneous and driven by contractual (and fiduciary) agreement between institutional investors and their clients,
  • institutional investors are guided by global principles and facilitated in the execution of their legal rights in different jurisdictions, should they wish to do so
  • and the prevailing theoretical perspective is one in which shareholders are assumed to have congruent interests that do not conflict much with those of the company’s managers, and shareholders are assumed to act in accordance to this shared responsibility.

As a contributor to SHIFT TO I commit to a better understanding of long term investing in relation to corporate governance, and to promoting a culture of thought as well practice in implementing the shift to long-term investing.