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.
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:
(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
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