Money matters

Corporate governance has moved forward from earlier carte blanche control structures. Different management structures have been examined, and changes will be inevitable through regulation or internal pressures for reform. Mandating the money immediately without control or lien is a bad idea and one that has fallen out of favour in fund management. Control by a more proactive group of trustees, an elected board of non-executive directors and more effective risk-burden sharing is on the cards. Tie everyone in and knot tightly to secure corporate loyalty and performance.
Governance capability levels show some ways in which we can exercise more control over the CEO and investment manager. ‘. . . the Sarbanes-Oxley Act is a call to get back to the basics that we have been discussing. Simply stated, the current status quo for corporate governance is unacceptable and must change. . . . The message for chief executive and chief financial officers and senior management is: Uphold your responsibility to maintain effective financial reporting and disclosure controls and adhere to high ethical standards. This requires meaningful certifications, code of ethics, and conduct for insiders that, if violated, will result in fines and criminal penalties, including imprisonment.’ We have shown some of the models for reforming and monitoring the fiduciary duty of the board of directors and investment managers. Organic risk management plays a valuable role here by asking what is the value of leadership – i.e. stripping away performance from perceived reputation. These models have the potential to move us into the light rather than signing your money away and being left in the dark.

A move from living off yesterday’s reputation is gradually taking over the market. One failure has come from the “best of breed” philosophy for hiring the best and paying the most. This attitude has been severely tested in an era of underperformance and corporate cost-cutting.
People are trying hard to forget the reputations of the prestigious accountants and the “best” investment banks. The fines against Wall Street and the investigations of Jack Grubman, Frank Quattrone, Martha Stewart et al. showed a belated attempt to rein in the corporate excesses. Should culprits try to destroy incriminating electronic evidence, then data recovery procedures will be able to retrieve much of the destroyed evidence. Email audit trails in forensic accounting procedures will find them out.
A star fund manager is no longer accorded the status, but earns it. Disappointing performance drops them into the satellite group of also-rans. The research done by actuaries, forensic accountants and other financial analysts offers sound ground for assessing staff selection. Background checks for finding real suitability, rather than professional skill listed in a glossy CV can find out the sad truth. Otherwise, risk and return appetites become more estranged.
Similarly, the reputation of a “top” services company can be just as short-lived and cheap as a bacon-lettuce-tomato sandwich. Go for performance delivered. Give them a check-list or interview to see if they can show results and sincerity.