For a number of years, the regulators have wanted to introduce strict rules in finance and banking institutions to help avoid potential conflicts of interest which can only arise when clients are common to distinct businesses within the same group of companies which are controlled or linked by their shareholding. There is no denying that many asset managers (irrespective of their size or relationship) have to take into account the risk, when they make management decisions involving companies or directors which are clients of their own company and/or subsidiaries or affiliated companies, that their decisions might call into question a business relationship or attractive short or medium-term business prospects.
Obviously, we are all constantly confronted with the issue of conflict of interest when a management decision may have a negative impact on a client/prospect, and no regulations or code of ethics are capable of predicting these in advance (and of course we could not pass any judgment in such a situation).
This raises a fundamental question for all asset managers who have to act in all good faith on behalf of their clients (some of them possibly having conflicting interests for that matter) and they can only respect this obligation by showing their code of good practice to all their clients beforehand. And this is in effect what many managers have done for several years now, particularly within the framework of Socially Responsible Investment.
Unfortunately, we have this year once again been forced to observe that companies such as Total and Société Générale consider that General Meeting debate by way of an external resolution, unapproved by the Board of Directors, is a form of inappropriate attack and that efforts should be made to block it using every available means, either by convening an Ordinary rather than an Extraordinary General Meeting as a de facto way of preventing an extraordinary resolution from being filed (Société Générale), or by refusing to amend the agenda of the General Meeting with an external resolution that, according to the rules, had the necessary capital to be placed on the agenda, on the pretext that some shareholders had withdrawn their support after the resolution had been filed (Total).
So it is not surprising we should wonder why some managers who had supported us in this step for several months decided to withdraw their backing and cease their participation in this collective and public initiative. Even if some individuals are willing to discuss it in private, no one is prepared to officially explain the motives that pushed them to change their stance, and with good reason!
As long as the legislator does not enforce absolute respect of ‘Chinese walls’ by separating asset management activities from other financial activities (commercial banks, investment banks, insurance, etc.), it will prove difficult for asset managers to act in a totally independent manner on behalf of their clients. The US introduced the Glass-Steagall Act in 1933, following the Great Depression (before repealing it in 1999). This needs to be introduced in France as a matter of urgency!
PhiTrust Active Investors
Investor and Shareholder
