"And Likewise, Whatever Became of Fiduciary Oversight?" A Comment from Robert L. McMahon

In response to the post about the SEC's early days, I would add that back in 1934 when these policies were officially adopted, most Americans were not shareholders of stock and most Americans were fairly ignorant of Wall Street ways. Most Americans didn't go to college and a large number still didn't finish their secondary educations.

Today most common shares are held by large institutions and pension funds and citizens investing through their employers or privately. So by extension, more Americans today have a vested interest in the stock market, shareholder rights and corporate accountability. However, time is limited and most citizens rely upon their investment managers to be the lead authority in exercising shareholder rights and for holding issuers financially accountable for their corporate performance.

Recent years have demonstrated that our investment managers have not necessarily been acting as the fiduciaries we were expecting. The carrot for them is to invest in companies with overwhelming financial performance to enhance their own bottom-line - chasing Alpha for bonus time - whether or not these companies are potential poster-children for corporate governance dysfunction. As former Citigroup Asset Management President, Tom Jones, once blythely stated, "I don't get paid for doing good."

The good Mr. Jones was addressing here could be catergorized as having an eye on uncovering the next potential Enron on the horizon and actually engaging that company to improve its governance profile - so that if Citigroup had a $2 billion equity position in its investment portfolios, that investment grows instead of being duck-walked into bankruptcy.

The reasons behind Mr. Jones not wanting to take such a path are stultifying when you speak them outloud - if Citigroup had taken this position then they would have had to "invest" in engaging that $2 billion equity investment. If there would have been positive outcomes other investment firms would have benefited from Citigroup taking a leadership role in redressing the governance shortcomings of this issuer. Thus the market would not have had to suffer the collapse of a $120 billion market-cap company and all investor boats would have been lifted. That kind of leadership and publicity one cannot buy from an advertising firm.

The SEC is too small to do all the heavy lifting in this market, but investment managers could be doing more in remembering their fiduciary responsibilities to investors by incorporating solid governance screening tools in their processes.

Enron, Tyco, Worldcom, Parmalat, HealthSouth, etc... were, first and foremost, governance failures.