To the surprise of presumably almost nobody, the economic crisis has made the general public more than a little wary of the financial services industry. The latest ‘trust barometer’ published by Edelman suggests that the financial services industry is trusted by only 41% of people in the US, but by only 29% of people in the UK. British bankers in turn should count their blessings. If they were Spanish, less than one in five would believe they were trustworthy.
This isn’t a purely European phenomenon. Even in the US, where people are generally more trusting of business, the financial services industry is now the least trusted industry of all – even less than journalists. In fact, the financial services and banking industry is on average now the least trusted sector in the world according to Edelman.
As an investment management business, it is small comfort that banks are the least trusted part of financial services. Investment managers have also come in for their fair share of criticism from other commentators. So far though there has been relatively little to suggest that the sector has worked out how to respond to this collapse in trust. In the UK, the Stewardship Code, which was launched in an effort to encourage asset managers to take more responsibility for their role as the ultimate owners of listed companies, appears to have yielded fine words but little else. A FairPensions survey published at the end of April showed that only 27 asset managers out of the 175 that have signed up to the code have disclosed a full voting record, with just 50 providing some level of voting data.
So what to do? The road to redemption will be a hard, but not an impossible one. Indeed, the route has already been well sign-posted by other industries that have, in their turn, experienced the opprobrium now being levelled at financial services. In the late 1990s, Nike and the wider apparel industry became the lightning-rod for concern about child labour. Initially the industry denied any responsibility, but roll the clock forward 15 years and not only do these companies acknowledge their responsibility to address the issue of child labour, but they provide extraordinary levels of transparency in revealing what and even where their activities take place.
This form of accountability is something that most of the financial services industry has, to put it mildly, been slow to embrace, but is precisely what experience suggests is required. Edelman sees ‘ethical business practices’ as the most important attribute that would help to build trust, but significantly, in terms of actual operational practices, two of the three most important actions focus on transparency (the third is offering high quality products and services).
According to UKSIF, 55% of UK investors do not understand what activities their savings and investments support and it is clear that investment management firms could be much more transparent. At WHEB Asset Management we are attempting to tackle this agenda head-on. This blog is clearly a modest part of that, as is our recent decision to sign-up to the UN Principles for Responsible Investment. We have also refreshed our independent advisory committee which oversees the integrity of our fund and now includes Nick Robins, the Head of HSBC’s Climate Change Centre of Excellence alongside other external participants including Crispin Odey of Odey Asset Management.
Other steps that we plan to take include:
– publishing summary minutes of the Investment Advisory Committee on our website
– publishing full fund holdings with a 6 month time-lag including investment rationales indicating why we believe the stock fits the fund’s philosophy
– voting all of our fund’s positions and providing quarterly reports on our voting and engagement activity.
Cor Herkströter, a former CEO of Shell, once argued that modern businesses were no longer operating in a ‘Trust me’ world where businesses were implicitly trusted. He argued that it was now a ‘show me’ world where the business community had to demonstrate that they were trustworthy. It’s time perhaps for the financial services industry to listen to his advice.