If 2008 was the year of crisis and 2009 the year of survival and steadying the ship, 2010 was the year of longer-term policy response. If one word stands out more than any other from the policy debates of last year, it is “Stewardship”.

The word has so many aspects to its meaning, making it at once a perfect and gloriously vague encapsulation of what is expected of investors as we seek to establish post-crisis stability. A cursory glance at a thesaurus brings out some pertinent characteristics: care; guardianship; vigilance; monitoring; protectorship; leadership; intendancy. They suggest the notion of being responsible for looking after something that is fragile yet important for somebody else.

Stewardship is an abstract word. It is not easily quantifiable, even though individually we can understand its meaning. It is not something that can be measured in the same way that you might measure return on investment or hours in the day. It may be accounted for; but it may not be ‘counted’.

All investment professionals are affected by stewardship. We are always managing something for someone else, even if we don’t own it ourselves. More often than not, that ‘something’ is just a small part of a wider ‘whole’ from which all who own a part benefit. We therefore all have a ‘societal’ responsibility towards it, in that we all have to do our bit.

In summary, we’re all impacted by stewardship, we all bear a responsibility for it, we all  have our own understanding of it, yet it cannot be counted so it can’t be regulated meaningfully. How, therefore, do we make it work?

The answer is, we have to look out for it ourselves, at an individual level. Both individually and as a global society, we cannot afford not to. Nor can we (or should we) rely on government regulation to do it for us. Assuming someone else is ‘looking after it’ is the quick way to ensure no-one is doing so (see our blog piece from May 2009 – “Who’s taking responsibility for corporate governance?” ), quite apart from the fact that it is also an abrogation of fiduciary responsibility. That is likely to be the main lesson history ascribes to our most recent financial crisis.

The problem is, many institutional asset owners don’t have the resources to make their own investment decisions. But that doesn’t mean asset owners don’t have a responsibility to understand them. In fact, understanding them is all the more important if we’ve entrusted someone else to take those decisions for us. This applies not just to voting, but is also highly relevant with trading, for example – to what extent might high turnover in your portfolio undermine the value of long-term positions and returns with trading fees?

That’s why, when it comes to voting, it’s important to know not just how your fund managers have voted, but why they cast your votes the way they did. Only then can you understand how your voting assets are being used to add value. What’s more, you don’t get if you don’t ask. But how would you know what to ask about? You’d need someone who knew what your views are, and who understood the issues thoroughly and impartially.

Manifest is an independent, expert governance research and proxy advisory agency that specialises in putting individual client policy first. With our Governance Watch service, asset owners can be sure to get valuable analysis of their fund manager’s voting in the context of their own views on real issues, rather than just dry statistics about how many times management have been opposed. It’s about meeting the fiduciary responsibility of understanding the values of the decisions your fund managers have made.

This is the cutting edge of making Stewardship work – can you afford not to?

For an informal discussion about how Manifest’s Governance Watch service can ensure you really make stewardship work, and ensure your fund managers do too, call Manifest on +44 (0)1376 503500 and ask for Paul Hewitt or Sarah Wilson.

Last Updated: 16 January 2011
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