The unceremonious ousting today of Daniel Godfrey, CEO of the UK’s Investment Association, gives much cause for concern and has international ramifications.
From the outside, it looks like a very British coup: a backroom show of strength from leading asset management firms concerned that the IA was following a populist line rather than looking after members’ interests.
At the IA, Godfrey instituted a set of principles for asset managers to make them commit to clients’ interests and enshrine investment stewardship; initiatives that RI applauds. He was a driving force behind the Investor Forum, the body charged with improving investor-corporate dialogue in the UK after the financial crisis.
The IA announced today that Godfrey was “leaving with immediate effect” after reports in the press this week that UK fund managers Schroders and M&G (who together account for a significant chunk of IA member revenue income) had threatened to leave the IA, with other fund managers suggesting similar action from the sidelines.
Why so? Off the record, fund managers told the media that the IA appeared to be going too far in its transparency efforts and was starting to feel more like the Financial Conduct Authority (FCA) regulator than a trade body lobbying in the industry’s interests. The managers said they wanted to see more work from the IA on the pensions time-bomb, the collapse of defined benefit pension plans and promoting the industry. They did not appreciate the rationale that asset management has a principles problem, encapsulated in the recent controversial Statement of Principles that the IA issued (see below).
Godfrey’s departure – in the media glare – is, at best, extremely poor governance at the IA. At worst, it reflects what one major UK paper has called a ‘civil war’ at the £5.5trn association.
On Twitter, fund manager SCM Private, said: “Will the last fund management group to leave the worthless Investment Association, please turn the lights off.” Campaign group ShareAction said Godfrey’s departure was “worrying”.
Where all this leaves stewardship, engagement and transparency – topics Godfrey had pushed hard in his three-year tenure – is unclear.
Neither is what it will mean for the Investor Forum and the IA’s recently announced Executive Remuneration Working Group; a potential source of embarrassment to some asset management chiefs!Companies would be right to look at these events and wonder why they should listen to asset managers on governance.
Godfrey’s departure should be seen as more than just a bit of internal politics at a trade body. It reflects the threat the funds industry is under as the value of third party asset management itself comes under scrutiny.
With a trend towards large pension funds in-sourcing their management, the industry is being obliged to tighten its belt.
One response is to work more closely and openly with clients to rebuild trust. Godfrey was making a sensible attempt at making the sector fit for purpose in the wake of the financial crisis and the valid charges (backed by government) that it was implicated in the ‘ownerless corporation’. A media savvy operator, he has tackled these issues head on; albeit at the cost of his job. The High Pay Centre, a think tank campaigning against growing income gaps, tweeted: “Sorry to see the sensible Daniel Godfrey depart as head of IA. Understood problem of excess pay.”
The National Association of Pension Funds, the voice of the end institutional client, declined to comment to RI.
Godfrey’s personal blog, which had been front and centre on the IA website, has already been removed.
It appears some of the IA members did not feel the transparency approach was in their interests, or at least not as much as Godfrey advocated.
As one industry watcher tweeted: “Quite possible the inside story at the Investment Association is complicated, but the shorthand will be that fee hungry managers knife a reformer.”
Prior to the IA, Godfrey was Communications Director at the Phoenix Group, the closed life assurance fund consolidator. He was formerly on the UK Government’s Retail Financial Services Forum. From 1998-2009 he was Director General of the Association of Investment Companies trade body. Before that he was marketing director at Robert Fleming, the fund manager.
He is also a non-executive director of Big Issue Investment Management, the social impact investment arm of the UK homeless charity.
On Godfrey’s LinkedIn page there are dozens of endorsements from leading figures in investment. They include Michelle Edkins, Managing Director of Corporate Governance and Responsible Investment at BlackRock, saying:
“Daniel’s leadership on and progressive approach to corporate governance matters within the investment trust sector was instrumental in advancing shareholder interests.” She goes on to say that Godfrey is “someone who champions the good cause, builds consensus and ensures policies become practice”.
Not in this case. The new IA broom has been swept out of the door over housekeeping issues.IA Principles: The signatories will do their utmost to:
1 – Always put their clients’ interests first and ahead of their own
2 – Take care of clients’ money as diligently as they would their own
3 – Only develop, offer and maintain funds and services designed to add value for clients
4 – Maintain the expertise needed to meet the objectives agreed with clients
5 – Make all costs and charges transparent and understandable
6 – Disclose to investors the source and value of any other material benefit they receive
7 – Ensure regular, timely and clear lines of communication with clients
8 – Set out clearly their approach to the stewardship of client assets
9 – Maintain a corporate culture that sustains these principles
10 – Work to develop and maintain guidance on industry best practice