survey, The Trust Challenge: How the Management of Financial Institutions Can Lead the Rebuilding of Public Confidence
, finds leadership in the asset-management industry itself on corporate governance standards and restoring trust in the capital markets as rather lacking.
"No sector of the economy has a greater stake in sound corporate governance than the investment management industry," said Chip Voneiff
, a PricewaterhouseCoopers partner, in the keynote address delivered today to the National Investment Company Service Association (NICSA) annual meeting in Boston. The investment management industry serves as both producer and consumer of financial information.
"If investment management firms are to hold other companies to the highest standards of reporting and governance, they themselves must become more transparent and take greater responsibility for restoring trust."
When asked to identify the main barriers to improving their own corporate governance practices, 63 percent of the survey respondents cited pressure from institutional investors to manage earnings on a quarterly basis; more than half (53 percent) identified vested interests at the board level; 40 percent pointed to complexity of the industry; and 37 percent equally cited the following factors: inadequate management; cost implications; and a perception that investors will not reward them for better governance.
Still, most of the respondents accept the fact that they may be penalized by the market if they fail to act. Over 80 percent of those surveyed believed that failure to improve their own standards of governance could result in severe repercussions, while only two percent believe that they will not be penalized by investors.
Ensuring full disclosure of off-balance sheet transactions and holding CEOs liable for the accuracy of the accounts were identified as the two most effective governance policies. Giving audit committees special powers to investigate financial reporting was cited by nearly half of the respondents. Also, one-quarter said that preventing stock options from forming the bulk of senior executives' compensation would be a step in the right direction.
Moreover, 56 percent of respondents said that the greatest pressure to improve transparency comes from regulators and investors, and not from their own management indicating that the industry is in reactive mode.
"To boost confidence both in their own firms and in the broader system of capital markets - the investment management industry needs to rethink its own standards, especially those for non-financial disclosure," said Voneiff.
The survey results are based on feedback from senior executives at 43 institutions from around the world, in addition to interviews with more than 30 fund managers, equity analysts, bankers, insurers and leaders of investment associations, ratings agencies and international financial institutions in the US, Europe and Asia.
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