Thomas Murray was founded 24 years ago to assure that investors’ property is respected by custodian banks. This was a time when institutional portfolios were spreading investments across multiple jurisdictions, a trend that has accelerated over this past quarter century. The firm’s remit widened to cover the spectrum of post-trade services, always with the same focus on investors’ safety and rights. Shareholder rights are, in fact, central to the financial system, and so also the key focus of Thomas Murray’s work.
Shareholder rights are a critical economic concern: when the members of the public are asked to hand over hard-earned savings as an investment in a corporation, whether in a stock or a bond or another financial instrument, the managers of that enterprise have an immediate obligation to handle that money fairly and honestly. Without trust in proper conduct by those managers in growing the enterprise such that value is created, we will not have the investment or capital formation (or jobs, or goods and services!) that our societies need.
But managers have an inherent information advantage over shareholders, and indeed their advisors and public overseers – when one is inside operating the corporation, one obviously knows a great deal more about what is going on. And since time began, an information advantage has been a precious good in all walks of life. This is the central point for shareholder rights.
Fraud, simple mismanagement and bad luck are all as old as time. But going back to relatively recent financial history, a critical innovation in the 1930s took place: to advance the development of capital markets, the United States government set up a national agency, the Securities and Exchanges Commission, whose central mandate was engraved over the front door: “We Protect Investors.” In the decades that followed, other governments set up their own equivalent agencies across the world.
How does one protect investors? Essentially, one must try to rebalance the information imbalance amongst managers and all external parties. This entails building a solid board of directors to work with managers by representing the enterprise as a legal entity in its own right, and its employees, clients, and owners. This is hard work, and much goes wrong across the world – that is human nature. But for the sake of the greater social and economic good, we know that this is the direction to go in: Thomas Murray’s analyses of custodian banks and market infrastructures address these matters and the transparency with which these banks and infrastructures explain themselves – to comply with regulation and more.
Having begun with the idea that investors need focused protection, in the following decades governments have had to shore up accounting standards, securities and contract law, set up rules and procedures for board governance, and critically also define requirements for corporate disclosures. The information imbalance is always the point to return to. Like justice in society and life, this work is never done. That must never deter or discourage us.
These decades of striving towards improved investor rights have had the effect of introducing some effective discipline on management of corporations, in a very positive sense. There are more rules to follow, investor relations departments to run, communications skills to master – backed by law and regulation in most countries. Whilst this sounds constraining, it has also led to more professional corporate management. Governments have had to get involved. These are great battles, even on matters of board composition, disclosure requirements, accounting standards and related tax laws and rules. A very great deal of money is at stake in all the world’s corporations. But at the same time, the introduction of independent directors on boards mandated to protect corporate owners and other social actors has also introduced a very different, broader and deeper discussion into the boardroom.
The road to protect shareholder rights has been leading to a redefinition of enterprise, management, and government, we trust in pursuing the greater good of economic progress and fairness. That should be a very good outcome for all.
Investment decisions, portfolio allocations, and geopolitical risk – these are all hard subjects. Where Thomas Murray supports investors is on all that happens once that investment is transacted, across the post-trade spectrum, through each step of the order processing, and this in more than 100 marketplaces.
The safety of investment, and fairness to investors – these are hard subjects. Thomas Murray cannot imagine any more worthwhile set of policy battles, in order to assure the best functioning of a liberal market economy.
The author, Thomas Krantz, is Senior Advisor, Capital markets, in the firm of Thomas Murray; and served as Secretary General of the World Federation of Exchanges (2000-2012). The views expressed are his own, and not necessarily those of the firm.