Down With Quarterly Reports, Urges Pension Summit

At a Toronto summit, institutional investors called for an end to quarterly reports, and new era of asset owner collaboration.

(July 1, 2013) – Better pension design equals better pension management, and improved management means stronger member outcomes.

That was the guiding principle at the Rotman International Centre for Pension Management’s June conference in Toronto, which assembled academics, consultants, asset owners, managers, and one former US vice president.

Al Gore opened the workshop with a review of the essential messages set out in his “Sustainable Capital” white paper, coauthored by investment banker David Blood and published in February 2012.

The attendees took on the following five major issues, eventually settling on a recommend course of action and mapping out a strategy for implementation:

1.) Potential impact of climate change on public asset pricing (stranded asset risks): The participants recommended that companies undertake in-house initiatives to raise the understanding of stranded asset risk both at the board and management levels. They also called for more effective collaboration with likeminded institutional investors to find solutions to better manage the climate change issue and its investment impact.

2.) Integrated reporting (IR): The panel recommend that institutions advocate for the adoption of integrated financial and non-financial reporting, for both their own results and assessment of investments’ long term prospects. According to the attendees, this method offered a cleaner and more collective view of performance. On a macro level, they suggested that institutional investors are fully aware of the evolution of the IR initiative, and can readily become early adopters.

3.) Quarterly Earnings Reporting: Still on the issue of reporting, the panel switched its focus to ending the default practice of reporting quarterly earnings. Led by Canada Pension Plan Investment Board’s Eric Wetlaufer, the group of investors advocated instead to turn the focus onto asset managers’ annual results. They argued that an industry-wide movement (perhaps launched by the CFA institute) to discount quarterly performance reports would signal that longer-term results really count.

4.) Executive Compensation Structures: The next topic was how funds (as shareholders) can relink executive performance and compensation for the corporations they invest in. The asset owners and managers in attendance urged consistency and unity in exercising their shareholder rights, as effective compensation practices would lead to long-term corporate growth. They called for collaboration to achieve consistent regulations on executive compensation, which must come with enforceable consequences for corporate boards.

5.) Promoting Constructive Investor Behavior: The conference finally turned to the idea of corporations rewarding long-term shareholders with increased influence through extra voting rights or increased dividends. The panel found that firms should design and implement a “model investment mandate” that could be shared among long-term investors. Such a contract would better align corporate goals with those of stakeholders, the panel said, as well as reducing transaction costs.

The center for pension management, based out of the University of Toronto, said it hopes these recommendations will foster further discussion, careful planning, and lead to strong execution by asset managers and owners in accordance with their fiduciary responsibility.

For more in-depth coverage and analysis of the event, see Keith Ambachtsheer and Rob Bauer’s report here.

 

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