I was at a corporate governance seminar yesterday. It was Chatham House do, so I'm not supposed to attribute comments and I won't. The most interesting thing for me was to hear one former chairman and chief exec (he had held both roles, as well as combining them - naughty!) talk about the value of good governance, and non-exec directors. I noticed that he mentioned the importance of objectivity several times, which was quite telling I thought.
He said that when he had been a chief exec he had wondered what the value of NEDs was, since they couldn't possibily have access to all the information that he had, and therefore couldn't be as informed. But he has subsequently changed his view and realised that 'internal' people often don't want to tell the boss bad news and as such tend to tell a good story because they fear confrontation. Non-execs can challenge this. He also criticised both the combination of chairman and chief exec roles (on the basis that power corrupts...), and chief execs going on to become chairman (err... HSBC).
It reinforced the point for me that any governance system is dependent on the people within it. Good structures cannot turn bad managers into good ones, though they can perhaps prevent bad managers doing too much damage.
The discussion later on was about the role of investors in governance, and in particular what pension fund trustees can do. One speaker made the point that you couldn't even describe trustees as apathetic about corporate governance, as this would imply that they had thought about it and decided it wasn't worth bothering with, rather than the reality that most hadn't even considered it. Again you are reliant on good people doing the right thing for the system to work as text books tell you it ought to.
I seemed to annoy a couple of people in the audience (not deliberately!) as I said I thought if you really wanted 'owners' to play an active role you should strip the ownership function out of fund managers. My argument for this is that these are businesses that were created - and are paid - to make money out of trading, so why expect them to carry out the ownership bit to any standard? This is turn is based on my assessment that most fund managers don't take corporate governance massively seriously. Their voting records are, from my perspective, unimpressive and I doubt that most have the staff to carry out extensive engagement (whatever that term means).
Walking back to the tube station after the seminar I wondered if I was being a bit harsh. Maybe what fund managers do is simply 'good enough' rather than 'very good'. In my experience you can identify in advance the fund managers that are likely to take a tougher stance on a given governance issue. It's hard not to conclude that once again it's about individuals being willing to take a position.
Maybe we simply shouldn't expect too much of either corporate or investor governance given that at the end of the day it is dependent on human beings, with all their faults, to make any system work?
Hat tip: Immanuel Kant