It is impossible not to be criticized when you are in the spotlight. Case in point: Warren Buffett. In the space of two weeks he has been criticized for supporting Hillary Clinton in the US presidential race, for a Corporate Governance “manifesto” co-signed by several CEOs (I’ll adress that in a separate post), and now for being increasingly “relentless” in his search for efficiency.
An (unnecessary) debate has begun about the right of Board members to access data in excess of what management provides, if necessary. We can and should discuss the form of potential abuses and its punishments, as well as reasonable boundaries of access to management and data. But we should not seek to remove a basic right of the Board members, who are personally liable for their decisions.
Two noteworthy articles and one notable initiative in Brazilian CG practices nowadays. One regards an already-missed opportunity, the others still have potential (but should be treated with priority by investors interested in improving Brazilian capital markets).
After a very public fraud issue with insurance licensing, Zenefits is taking steps to re-adequate its financing and shareholder base. Yes, it is in exchange for a promise of no legal action, and no, not everyone is happy – but it seems as interesting as it is unusual.
Very interesting article on HBR.org: The Case for Activist Investors. The first book highlighted in the article – “Dear Chairman” – sounds like a great read, as it compiles now-classic investor letters to Board members and to the executive teams of companies they invested in.
Bovespa’s Corporate Sustainability Index (“ISE”) is about to turn 10 in November and it has outperformed the flagship Bovespa Index. We are firm believers in active, case-by-case, in-depth investigative investing in our fund, but it doesn’t blind us to the potential benefits – for some – of index investing. The devil is in the details of any index’s formation, criteria, balancing and so on. Furthermore, the dangers of an inflexible mandate are well-known.
There isn’t one foreign friend of ours – from inside or outside the investment community – that hasn’t asked us “the Petrobras question(s)”. We are sorry to say that we don’t have an answer and probably never will. Call us superstitious, but state-owned companies have a knack for causing the occasional investment disaster. We put them in the “too conflicted” box and move on. In the meantime, we point to Prof. Aswath Damodaran’s musings on Petrobras.
Back in March 2014 we published our 4Q13 management report containing a special section discussing Proxy Advisory Firms. It was motivated by further research following a June 2013 post on Buysiders.com called “Proxy Advisory firms: use with caution”. In the original post I highlighted “the dangers of “outsourcing research” – be it in Corporate Governance, people, financials, business models, competition, whatever – and the temptation of trying to systematize/quantify an investigation that is, by nature, subjective and case by case.” In the excerpt inside I addressed this part in detail but also mentioned “the fundamental choices we should make in terms of capital allocation (be it financial or human).” We can choose how we do our research, and we should choose wisely. For us the choice is clear.
I’ve just read a Stanford paper on the decision-making process of Proxy Advisory firms such as ISS and Glass Lewis. I will write more in-depth about this in the future, but in summary this paper highlights the dangers of “outsourcing research” – be it in Corporate Governance, people, financials, business models, competition, whatever – and the temptation of trying to systematize/quantify an investigation that is, by nature, subjective and case by case. The paper itself falls into to some of these traps.
The Norway sovereign fund has published a discussion note on corporate governance practices it expects from companies it invests in. With US$ 650 Billion in assets, attention to what they say is guaranteed (compliance not so much).