Written by Bev Shah

No excuse for poor governance

Once again, we have seen some very public examples of when a firm is slow to recognise, and act upon, internal reports of toxic behaviours play out in the press.

I wrote in my column in Investment Week in March 2021 pondering how people outside the industry see us, and what we let our ‘gods' get away with?

At the time I referenced several who have faced scandals saying: "Maybe they hear the stories of Messrs Woodford and Newman and think 'greed', or see the behaviours of Douglas Hodge and think 'crooks'. Do they hear of Odey's alleged offences and think 'dishonour'? The industry's relationship with the public is tenuous; infected by front-page scandals that we believe are the exception to the day-to-day behaviours we see in the industry."

The reality is a firm can only turn a blind eye to signs of poor culture for so long before the dam bursts and the reputational damage unravels in the public eye. Ultimately, this is not only damaging to the future of a firm, but means the fallout is across the board, inevitably cascading down to clients - which is wholly unacceptable and avoidable.

It is an unfortunate fact that misconduct can happen in any industry but in the world of investment, firms are, and must act as, the stewards they are of people's assets.

The firm's fiduciary duty towards these assets should be front and centre of their activities. It must demonstrate to clients that it has good judgment and will make the right decisions to protect the long-term future of the firm and the assets.

Sometimes we see this subsumed due to the strength of a personality, or the dotted i and crossed t being overlooked due to the weight of personal relationships.

The bottom line is: there simply is no substitute for good governance, top to bottom. Governance is essential for providing structure for a firm to operate at its most effectively; to take calculated and analysed risks that drive the business forward but provide a space for people to call out misbehaviour, admit where mistakes have been made and issue corrective actions.

Now more than ever, firms should very clearly see that they must act swiftly and comprehensively to ensure the workplace is one of psychological safety. Employees must feel safe enough to speak up about any misconduct or malpractice they witness or experience and feel supported enough to be empowered to call out behaviours that appear to run counter to a good culture.

All stakeholders need to look at red flags and act on them, before they escalate. In the case of Crispin Odey, his reputation as a big personality was enough to allow him to sack executives that attempted to sanction his behaviour. Despite many allegations, and there were many, people did not and still do not want to talk about this level of top-down silencing.

In a letter to Harriett Baldwin, chair of the Treasury Select Committee, the FCA wrote of its investigation into Odey Asset Management: "A corporate culture that tolerates sexual harassment or other non-financial misconduct is unlikely to be one in which people feel able to speak up and challenge decisions, or one in which they will have faith that concerns will be independently and fairly assessed. Such a culture also raises questions about a firm's decision making and risk management."

It is important to say that this does not only apply to the larger players. There is a particular risk for smaller firms who often fall back on the reasoning that they lack resources to be covering all aspects of this - this is very dangerous ground.

You may start small but as your assets under management grow, you should start to lay the foundations of good governance to ensure bigger risks are not being introduced later down the line. Time well spent with a good ROI for the entire firm and its future.

Fund managers who set up their own investment management boutique have to add running a business to their daily investment activity.

Being a good investor does not make you a good entrepreneur or business owner. Building transparency internally and good culture from the ground up needs a strong framework.

Small boutiques with limited resources and budget would benefit from following standardised frameworks already available. The ACT Framework was carefully developed to fill this gap. It provides a structure for firms of all sizes to understand where they are and how they want to develop. It is much easier and less risky to build a framework from the ground up which will help to head off bigger issues down the line.

This article first appeared on Investment Week.