02 February 2009
Investing America is clamoring for solutions to today’s financial calamities. Ordinary citizens who have been regularly investing in their college savings plans, retirement accounts and pension funds have taken a 50%, or more, haircut in their investment assets and both corporations and government are pointing fingers at one another assigning blame. There’s blame enough to go around for everyone involved, but how can investors ever trust again the firms they gave their money to only to watch that capital go off to money heaven? There’s a disconnect in investing America that needs some attention.
In his 2005 book The Battle for the Soul of Capitalism, Vanguard Fund founder John Bogle tagged this disconnect the way Joe DiMaggio would tag a low and outside fast-ball when, in writing about the corporate and investment scandals of 2000 to 2003 he revealed a stark truth about nearly all the investment firms we give our money to on a regular basis:
“…there is little, if any, evidence that (these) professional investors took with any seriousness the ownership responsibility of the institutions that employed them or understood the due diligence required of security analysts. These institutions were part of no scandal, except the scandal that they failed to do their homework on the stocks they were buying and selling each day, and the scandal that they failed to speak up for the interests of the last-line shareholders – the mutual fund owners and the pension beneficiaries – they were duty-bound to serve. The participation of our private financial institutions in corporate governance was close to nonexistent.”(emphasis added in bold by this author)
The key word in the indictment above, to my way of thinking, is “ownership”. These investment firms, in all their forms, represent the largest pools of investment capital ever amassed anywhere, yet they demonstrate no interest in acting as owners for the benefit of our invested dollars; again it’s this disingenuous disconnect that bothers me.
As an illustration of this disconnect consider that there is a company in the S&P 500 index today that has been the subject of regulatory investigations, senior executive resignations (including two CEO’s), an options back-dating investigation, has been categorized as a delinquent filer, doesn’t hold regular annual meetings, offers no voting rights to Class A shareholders, doesn’t offer proxy access to Class A shareholders, and is essentially a controlled company – a company where there is no meaningful separation between the board and management, and is controlled through the voting power of the non-trading Class B shares held by the owners and senior management. This company, according to the records at The Wall Street Journal Online, lists the top ten largest institutional shareholders with a combined investment of nearly $4.5 billion of the Class A shares.
If this company were to implode tomorrow due to these documented governance failings and that $4.5 billion went up in smoke – your money and my money – what possible excuse would these institutional titans of investment acumen provide to you and I for selecting this Frankenstein stock as an investment opportunity? None would be the correct answer, because that is essentially the non-response they gave when Enron, Tyco, Worldcom, Adelphia, Global Crossing, Fannie Mae, Freddie Mac, Parmalat, Satyam, Merrill Lynch, and Lehman Brothers imploded. And they keep telling us that there’s an SEC out there!
The professional investors we entrust our assets to continue to demonstrate that the corporate governance quality and character of their investment selections is unworthy of their consideration. And here lies the proverbial disconnect you can drive a bus through; for as governance failings continue to blow our retirement dollars away, investment firms are reluctant to educate themselves in assessing governance risk and it certainly seems willful on their part.
In his 2005 book The Battle for the Soul of Capitalism, Vanguard Fund founder John Bogle tagged this disconnect the way Joe DiMaggio would tag a low and outside fast-ball when, in writing about the corporate and investment scandals of 2000 to 2003 he revealed a stark truth about nearly all the investment firms we give our money to on a regular basis:
“…there is little, if any, evidence that (these) professional investors took with any seriousness the ownership responsibility of the institutions that employed them or understood the due diligence required of security analysts. These institutions were part of no scandal, except the scandal that they failed to do their homework on the stocks they were buying and selling each day, and the scandal that they failed to speak up for the interests of the last-line shareholders – the mutual fund owners and the pension beneficiaries – they were duty-bound to serve. The participation of our private financial institutions in corporate governance was close to nonexistent.”(emphasis added in bold by this author)
The key word in the indictment above, to my way of thinking, is “ownership”. These investment firms, in all their forms, represent the largest pools of investment capital ever amassed anywhere, yet they demonstrate no interest in acting as owners for the benefit of our invested dollars; again it’s this disingenuous disconnect that bothers me.
As an illustration of this disconnect consider that there is a company in the S&P 500 index today that has been the subject of regulatory investigations, senior executive resignations (including two CEO’s), an options back-dating investigation, has been categorized as a delinquent filer, doesn’t hold regular annual meetings, offers no voting rights to Class A shareholders, doesn’t offer proxy access to Class A shareholders, and is essentially a controlled company – a company where there is no meaningful separation between the board and management, and is controlled through the voting power of the non-trading Class B shares held by the owners and senior management. This company, according to the records at The Wall Street Journal Online, lists the top ten largest institutional shareholders with a combined investment of nearly $4.5 billion of the Class A shares.
If this company were to implode tomorrow due to these documented governance failings and that $4.5 billion went up in smoke – your money and my money – what possible excuse would these institutional titans of investment acumen provide to you and I for selecting this Frankenstein stock as an investment opportunity? None would be the correct answer, because that is essentially the non-response they gave when Enron, Tyco, Worldcom, Adelphia, Global Crossing, Fannie Mae, Freddie Mac, Parmalat, Satyam, Merrill Lynch, and Lehman Brothers imploded. And they keep telling us that there’s an SEC out there!
The professional investors we entrust our assets to continue to demonstrate that the corporate governance quality and character of their investment selections is unworthy of their consideration. And here lies the proverbial disconnect you can drive a bus through; for as governance failings continue to blow our retirement dollars away, investment firms are reluctant to educate themselves in assessing governance risk and it certainly seems willful on their part.
No comments:
Post a Comment