As an investor, for nearly ten years we have systematically given extra weight in our portfolios to companies practising the best corporate governance; we have also fostered dialogue with companies that listen to their shareholders with a view to improving their practices.
Paradoxically, although a number of academic studies have questioned the relevance of the “good” governance criterion for determining a company’s market value, certain grass-roots analyses have shown that good governance is a leading indicator of a company’s health. The performance of our Proxy Active Investors fund over the past three years shows that, for the moment, a portfolio that overweights “good” governance companies outperforms the market.
The recent nosedive taken by the PSA Peugeot Citroen share is therefore highly disconcerting: this company practises “good” governance and its directors and principal shareholders have for many years encouraged dialogue with all stakeholders.
The French government voiced its concerns in no uncertain terms after PSA’s decision to close some of its factories in
including the Aulnay plant north of ;
the unions slated the decision, which prompted certain union leaders to speak
of “war”; the media spotlighted a decision taken purely in the interests of
financial shareholders and the company’s founding dynasty. Paris
For several years now, all industry stakeholders have realised that many car manufacturing plants like Aulnay were doomed and that the directors were systematically putting off the decision to close them, either because they thought they could continue to prioritise France for car manufacturing (which Renault didn’t do, even though the French government is one of its shareholders …) or because stakeholder lobbying prevented them from taking such a decision in the interests of a certain kind of social solidarity …
Analysts have put forward various reasons for PSA Peugeot Citroen’s share price plummet, including the company’s excessive dependence on the French and European markets (but what were they saying two years ago?), its sluggish growth in all emerging markets (but what about Brazil and China?), the impossibility of being “too” small and the risks resulting from its strategy of multi-brand alliances (but did they have any choice?), the difficulty of moving the model range upmarket (what about Citroen?), etc.
As an investor, we know that the path to growth is not a smooth one, that risks need to be taken in favour of long-term vision and that, above all, directors and principal shareholders must listen to what all their stakeholders have to say with regard to how they implement their long-term strategy. Aren’t these the ingredients of good corporate governance? And shouldn’t we be supporting companies that embrace this vision, especially when the going is tough?
Olivier de Guerre
Chairman of PhiTrust Active Investors