By Robert L. McMahon
In the mix of letters published this week in the WSJ as responses to last week's Op-Ed’s of John Bogle and Michael Jacobs, “A Crisis of Ethic Proportions” and “How Business Schools Have Failed Business” respectively, I noticed a few rather cheap shots at the ideas put forth by the authors.
One letter writer appears to accuse Mr. Bogle’s leadership in creating index funds as the lead culprit in giving rise to a lack of concern regarding governance issues. To a certain extent indexing has provided an awful lot of cover to investment managers, but it should never excuse them from acting like an owner. And this is Mr. Bogle’s point.; just because a poorly governed firm makes it into an index the fund manager is tracking to, does not, and should not, release them from there duties and obligations as a capitalist shareholder. But this leads to another letter writer’s misconception about ERISA as having some enforceable fiduciary framework for investment managers to follow; it simply isn’t true, the statute doesn’t say that.
Under ERISA the only fiduciary framework provided is for the “Plan Sponsor” and even this fiduciary framework has a big missing link – it doesn’t impose any fiduciary accountability standard on the “sponsor” or the “investment manager” to put the long-term interests of the plan investors to the fore. In other words, the sponsor and the manager are free to invest in the next Enron and get a good night’s sleep.
With regard to a letter writer being dismissive of Mr. Jacobs’ Op-Ed as “overwrought navel gazing”, I ask where were the fund managers of America in alerting investors to the risks of Fannie Mae and Freddie Mac to our financial system? I worked at GovernanceMetrics in 2002 and when their first round of reports was released that November, both firms were rated at the bottom of the barrel yet both were S&P 500 names. They were the walking dead seven years ago.
Yes, it’s not simply the fault of greedy MBA’s solely that has created this economic and financial disaster. Quite obviously it’s a dysfunctional set of corporate laws and regulations that have obfuscated accountability. But when you’re managing other peoples’ money you should be doing everything you can to ensure that that your funds $500 million investment in a company simply won’t evaporate due to issues you’re blithely ignoring. John Bogle’s point is that we are an industry awash in financial talent that has effectively been silent on the sidelines as our financial economy has burned to the ground.
In the mix of letters published this week in the WSJ as responses to last week's Op-Ed’s of John Bogle and Michael Jacobs, “A Crisis of Ethic Proportions” and “How Business Schools Have Failed Business” respectively, I noticed a few rather cheap shots at the ideas put forth by the authors.
One letter writer appears to accuse Mr. Bogle’s leadership in creating index funds as the lead culprit in giving rise to a lack of concern regarding governance issues. To a certain extent indexing has provided an awful lot of cover to investment managers, but it should never excuse them from acting like an owner. And this is Mr. Bogle’s point.; just because a poorly governed firm makes it into an index the fund manager is tracking to, does not, and should not, release them from there duties and obligations as a capitalist shareholder. But this leads to another letter writer’s misconception about ERISA as having some enforceable fiduciary framework for investment managers to follow; it simply isn’t true, the statute doesn’t say that.
Under ERISA the only fiduciary framework provided is for the “Plan Sponsor” and even this fiduciary framework has a big missing link – it doesn’t impose any fiduciary accountability standard on the “sponsor” or the “investment manager” to put the long-term interests of the plan investors to the fore. In other words, the sponsor and the manager are free to invest in the next Enron and get a good night’s sleep.
With regard to a letter writer being dismissive of Mr. Jacobs’ Op-Ed as “overwrought navel gazing”, I ask where were the fund managers of America in alerting investors to the risks of Fannie Mae and Freddie Mac to our financial system? I worked at GovernanceMetrics in 2002 and when their first round of reports was released that November, both firms were rated at the bottom of the barrel yet both were S&P 500 names. They were the walking dead seven years ago.
Yes, it’s not simply the fault of greedy MBA’s solely that has created this economic and financial disaster. Quite obviously it’s a dysfunctional set of corporate laws and regulations that have obfuscated accountability. But when you’re managing other peoples’ money you should be doing everything you can to ensure that that your funds $500 million investment in a company simply won’t evaporate due to issues you’re blithely ignoring. John Bogle’s point is that we are an industry awash in financial talent that has effectively been silent on the sidelines as our financial economy has burned to the ground.
No comments:
Post a Comment