In the generally warm, fuzzy aftermath of the International Corporate Governance Network’s recent Annual Conference at the Guildhall in London, two sobering reflections continue to dog my memories of what was otherwise an extraordinarily successful conference. On the face of it, the conference was a resounding success. Despite the terrorist attacks of July 7th which paralyzed London transport and prevented several speakers from arriving in the U.K. at all, more than 500 delegates showed up over the two days of the conference. The programmed speeches and panels went on almost without a hitch. The turnout was almost as high on July 8th, despite the fact that many could have used the fear of follow-on attacks and continued interruption of four Underground lines as justification for not attending. The talks were interesting and useful, the level of professionalism high. For those of us who have fought to establish governance activity as a legitimate exercise of property rights on the part of shareowners, the conference was exhilarating. The corporate governance movement has clearly come of age. And yet . . .
The first cloud over this generally sunny landscape is that almost none of the conference attendees represented ‘mainstream’ fund managers. Despite best efforts by the hard-working and able conference organizers, the ICGN Conference has remained a conference by corporate governance practitioners, for corporate governance practitioners. Those U.K. hedge funds which have recently become in involved in governance initiatives, such as TCI and Atticus, were not there, nor were aggressive relational investors, such as Carl Icahn and Guy Wyser-Pratte. Most of the big U.K. unit trusts, the American mutual funds, or any of their Continental counterparts were conspicuous by their absence. Those which were present were represented almost entirely by governance specialists, rather than by portfolio managers or senior executives. Global giant Fidelity had no employees in attendance, nor did Capital Research. Most major securities law firms were not represented. Nor were many issuing companies in evidence, despite the presence of several of their most prominent members as speakers: companies and their advisors clearly are convinced they already know how to ‘do’ corporate governance.
The other shadow cast over the conference was that there was a general air of complacency on the part of the speakers. The cause of better corporate governance was taken as sui generis, something like accounting standards which may be fought over and involve considerable political maneuvering, but for which the need is accepted by all. It was assumed by almost all panelists that the cause would continue to grow, and that there would be more and more general acceptance of better standards. Not only was there no discussion of the widely-entertained argument that the cost of complying with many of the new governance regulations has far exceeded any benefits which might flow from them, there was no discussion of how to meet the still-persistent argument that there is no economic benefit to be associated with improved corporate governance. It was as if a gathering of prelates dedicated to issues facing the Church completely ignored the subjects of declining church attendance, and the intellectual challenge of secularist philosophies.
Yet the idea of investor involvement in corporate governance still meets with wide opposition in corporate circles, and major fund managers are persistently skeptical of governance initiatives, and of their capacity to do shareholders any good. As I pointed out in my panel, governance specialists often have a difficult time persuading their own investment staff to cooperate with them, a point which many in the audience acknowledged. Despite all the recent examples of spectacular disasters, the cult of the corporate ‘strongman’ is still very much alive. What the corporate governance movement needs are better studies, more quantitative proof for its positions, and a publicity machine to get the message out that bad governance destroys shareholder wealth, and that investors need to pay attention to governance issues the same way they look at sales growth, return on capital employed, book value, and any of the other variables deemed key to judging the quality of an investment. Until that message is clearly transmitted to investors, corporate governance will continue to be spoken of at best in the same breath as employee safety requirements, non-discrimination in employment, or any of the other burdens society heaps upon private enterprises for non-economic reasons. At worst, some still relegate it to the domain of do-gooders, tree-huggers, radical anti-capitalists and others who would impose utopian or crackpot ideas upon a society which has wisely decided to reject them.
The ICGN is the world’s premier corporate governance organization, created ex nihilo in only ten years. That is its achievement and its glory. The organization has been at the forefront of developments which have raised governance from the concern of a few crusty dissident shareholders to a legitimate issue occasioning press comment, legislative concern, and occasionally compelling erring and even malevolent managements to change course. Moreover, corporate governance has become a concern in many countries where there has been no tradition of shareholder rights at all, where the prevailing notion of the treatment of minorities was, “Let the outsider beware.” The ICGN has been godfather to a whole industry. But its greatest challenge remains that so few outside the governance field have heard of it, or care. An organization which supposedly represents more than $15 trillion should make every abuser of shareholder rights quake in his or her shoes, and every issuer of corporate securities sit up and take notice. The truth is that most of them could not care less, and so far, they have been right.