On the Global Investment Menu
In these times, it is rare to be able to use the words “extremely successful” and “real estate investor” in the same sentence. So when I consider the utterances of my friend Joe, an extremely successful real estate investor, I often take heed. One of Joe’s key aphorisms has long been: “If we all had the same taste, we’d all be eating in the same restaurant.”
Those words, and their applicability to the choices and preferences of investors, regulators and directors, came to mind while on a recent two-week stretch in Singapore, the UK and the US. The range of attitudes and approaches in responding to rule-making and compliance was noteworthy, as it demonstrated the spectrum of approaches that can be employed in attempting to reach the goal of good, responsible governance.
Without getting enmeshed in long, generalized discussions about cultural differences and attitudes on ensuring compliance, I thought it might be interesting to offer a few quick snapshots of what is on the regulatory menu around the globe. Think of them as small “appetizers” from a number of cuisines, and please, disregard any old biases about English, Asian or American food. There are great chefs at work, and great meals to be had in each of these places.
In Singapore, regulators “name and shame” companies whose governance practices fail to measure up on specific requirements. One of the consequences of ignoring the mandate to have separated the chair and the CEO roles, is having the company name appear on a list of those “out of compliance”, and having that list well-publicized and broadly published. The newspapers and the financial press are ready consumers and promulgators of the list.
- In the UK, the Financial Reporting Council (which is the principal corporate watchdog) has proposed a “comply or explain” requirement in a proposed UK Stewardship Code for the behavior of institutional investors as shareholders, matching the UK Corporate Governance Code which is already in place. In this case, for example, the goal is to bolster shareholder involvement in corporate governance. The code, as proposed, is not mandatory, allowing for the possibility of extenuating circumstances such as size or a specific investment strategy. At the same time, who adheres to the code, and who does not, becomes a matter not just of public record, but of public disclosure as well.
- Dodd-Frank financial reform has moved many of the questions regarding corporateIn the US, we have seen that governance, such as majority voting, out of the hands of legislators and into the hands of regulatory entities who are charged with balancing the interests of a wide band of constituencies, ranging from public-sector pension funds that own huge quantities of corporate shares all the way to smaller-scale, newly-public companies. The public-sector investors have substantial leverage, and are clear about the practices they expect to see disclosed and followed on the corporate governance menu.
So what’s the takeaway from all of this? Does it whet your appetite for more in the way of voluntary compliance? More in the way of mandatory compliance? More or fewer consequences for non-compliance?
In the arena of restaurant practices, there is wide variation. Some jurisdictions publicize the names of restaurants who have recently “failed” inspection, and why. Others make restaurants conspicuously post the most recent results of their inspections for cleanliness, with big colored signs carrying a letter grade or a test score.
Keeping in mind Joe’s views on peoples’ tastes, along with the global availability of venues in which to invest or manage, what do you want on the menu that will satisfy your appetite for good governance?