Forum Archive Index - October 2000

["P Maiden" <pmaiden@xtra.co.nz>]

Ben - that was a tremendous reply re the posts on fund managers responsibilities. I am not really surprised you did not get any response from anybody involved with managing a fund.

 

I still believe that fund managers need to be more pro-active and if necessary take a role in guiding non-performing companies. After all they generally are the largest independent shareholders of the company. Only by being more proactive will they get a better return for their fund.

 

Insofar as promoting the views of the the smaller shareholder we could follow the lead taken by the Australian Shareholders Association. I don't know much about them but they seem pretty active and get their fair share of press etc.

 

Recently they have life hard for the directors of Pacific Dunlop and no doubt, even though the ASA failed this time around, will eventually get their say unless the company performs better. 

 

This week the ASA apparently turned the heat up on Wattyl directors at that companies AGM. Next in line apparently is Orica. Watch this space.

 

Such an association in NZ could be a mouth piece for many smaller investors who feel aggrieved - not just around company performance but other issues as market breadth not being available on the NZSE.

 

If the ASX and NZSE ever merged maybe a NZ branch of the ASA?

 

Peter.  

 

BEN's POST -

 

Interesting reply to Peter's post, Malcolm - I've thought about it all day. 

 

When you say "That is the fund mangers job, to make a return for the fund and for the funds investors (as you appear to expect), not to fix up the company because it is getting into difficulty, or make it accountable to shareholders" I have to disagree.

 

I think that if a fund manager has a holding in a company then that manager has a vested interest in seeing the company do well - sure, as you say they can easily quit if they don't like what they see, but what happens if the company *could* do well, if only it had the right management? 

 

For instance, say company XYZ is in an industry in which it could be very profitable, but years of mismanagement by the directors have destroyed the companies earnings and shareholder value.  Are shareholders going to walk away and say "oh well, can't fix that one up, better bail" or are they going to get in there, make sure the bad apples are removed and thus help re-create company and therefore shareholder wealth?

 

If they do, there's a good probability that the fund manager can actually make a better return for his/her fund by being proactive and helping shape the companies management.

 

I'm sure that many fund managers (especially overseas where shareholder revolts are commonplace) would say that, as owners of the company, they would expect to be listened to.

 

Certainly in the United States, institutional shareholders are very powerful within the companies they have holdings in.  CEO's and Director's are sacked all the time (example - Lucent's CEO being removed just today - Lucent's big shareholders had been screaming for him to go after years of underperformance - they got their wish).

 

I did a search in the NZ Herald site and pulled up an old article by Brian Gaynor about shareholder activism in New Zealand - well, the lack of shareholder activism really.  Have a read:

 

http://www.nzherald.co.nz/storydisplay.cfm?thesection=business&thesubsection=&storyID=145265

 

(unfortunately the URL wraps  - you'll have to cut and past the two lines together - sorry).

 

Here are a couple of important paragraphs from the article:

 

"In New Zealand, shareholder activism is disorganised and impotent. Effective monitoring of companies is an important aspect of a free market economy but deficiencies in this area are having a negative impact on the sharemarket and economy.

Fund managers, who are amongst the strongest advocates of the free market model, are particularly poor monitors. They are rarely seen or heard at company meetings. Institutional investors meet privately with management but not with directors."

Perhaps if some of the larger shareholders of some NZ companies pulled the directors up and reigned them in or had them removed we wouldn't have seen such a large-scale destruction of shareholder wealth in certain companies on the NZSE.

Or maybe not?  Maybe we should just be content with the status quo?

I'd be interested in hearing other people's views on this topic - should larger shareholders be more proactive in this country?  Do we need a shareholders association to promote the interests of smaller shareholders?

Comments welcome :-)

Best Regards

Benjamin Dutton