All rather mysterious
Intangible and not very well understood, UK fund boards are going to have to start getting to grips with the importance of board culture, as a new report highlights its importance to the success of corporate boards
LAST week, UK Fund Boards presented the findings of its inaugural State of UK Fund Boards study, and pointed to several areas of weakness: independence and diversity, being the two most important. What the data in the study did not focus on is the glaring absence of any real sense of board culture.
At one level, this is not at all surprising, but one that is going to need to be addressed along with all the other important and tangible issues that the Financial Conduct Authority’s Asset Management Market Study has thrown up.
So what of board culture, and why the concern in its absence? Well, it turns out that board culture ranks third in terms of importance behind issues like strategy and financial performance, according to the recently released Board Leadership in Corporate Culture: European Report 2017. This research report by Board Agenda and Mazars in association with INSEAD goes on to point out that 40% of board members they surveyed believe they either do not devote enough time to cultural issues or that culture is not valued as a discussion topic. Only one in five say they spend the right amount of time on culture.
Some of the largest and most established fund managers authorised to do business in the UK are more often a division, or a unit, of a much larger (UK-, or internationally-listed) entity, and therefore there has been little need, if at all, to run an established board for the local unit. For sure, each one of these firms has a board, in a manner of speaking, which is almost always made up of executives, often non-executives from within the larger organisation, but almost never any independent ones. Additionally, these so-called boards operate with few, if any, of the usual policies and procedures that one would expect from a well-run board, which is a key role for the chair of the board, according to Graham Goodhew, a seasoned corporate governance expert, recently of the JP Morgan Luxembourg parish, and now an independent director on fund boards.
“An open and challenging board, be it comprised of executive, non-executive directors or a mixture of both, will only exist if the chair creates the right environment,” says Mr Goodhew, adding that the board acts as the “eyes & ears” of the individual fund investor who rely on each director to act in their interests to protect their life savings and pensions.
I think we can safely assume that if a survey, like the one conducted by Board Agenda et al was conducted amongst UK authorised fund managers, the very vast majority would have to agree they do not devote any time to this topic. With everything else they have to worry about these days, it certainly isn’t top of mind, but is soon going to have to become.
A Q&A session with Graham Goodhew, Luxembourg-based independent funds director.
In a future blog, Mr Goodhew will present his initial assessment of the Asset Management Market Study, suggestions for both UK managers and aspiring independent directors, as well as his thoughts on corporate governance in the fund industry