The Hayne Royal Commission brought into sharp focus the widespread governance failures at the board level for many financial institutions, despite the fact that the sector exhibits strong board independence. We examine board independence through the lens of founder firms and find that the presence of a founder contributes to better operating performance, a premium rating and helps to manage agency costs effectively despite the lower fraction of strictly independent board members. Stakeholders in the industry - including analysts, investors, ESG data vendors and proxy advisers - that continue to embrace the one size fits all approach risk unduly penalising such companies for low board independence.
In this post, we provide a quarterly update for our global and Australian founder strategies. We offer the rationale for our primary stock selection tool, a founder’s active ownership stake. This is designed to focus our strategies on stocks whose founders have made the most significant financial and emotional investments in their company. We also discuss how the upheaval in China’s shadow banking sector in recent years has contributed to the slowdown in growth but helped to address systemic risks in the financial system.
The recent death of John Bogle, founder of Vanguard and one of the great disruptors of the asset management industry, offers a timely reminder of the triumph of modern portfolio theory. The rise of low cost indexing would eventually tilt the playing field against corporate diversification in favour of financial diversification. The post also highlights the agency problems of index funds. Due to the free rider problem, index funds face particularly weak incentives to engage in stewardship activities that enhance corporate governance and market value. Founder companies potentially offer a resolution to these agency problems because many founders are poorly diversified financially and/or emotionally.
The launch of the global and Australian founder strategies at the start of the December quarter coincided with a turbulent period in financial markets. In this post, we provide an update of their returns. We also examine the renewed market volatility in the context of a sharp lift in the equity risk premium since October, and suggest that recent communications from the Federal Reserve that it has scope to be patient in lifting its key policy rate points to less turbulent market conditions in the year ahead.
Against the backdrop of growing concerns around corporate short-termism, Global Founders Funds Management has launched its global and Australian investment strategies, to our knowledge the first products of their kind to invest exclusively in founder and/or family controlled companies. We explain why an investment in listed founder companies delivers the benefits offered by both public and private markets. Our strategies represent vehicles for investors to get low cost exposure to liquid and transparent assets where the founder has skin in the game and a long-term focus on maximising shareholder value.
Eponymous firms - those which bear the name of their founder - tend to do better than non-eponymous firms. If that's the case, why don't more entrepreneurs attach their name to their firm?
Diffuse shareholder ownership promotes risk sharing diversification but reduces monitoring incentives because of the free rider problem. In their seminal analysis, Berle and Means argue that diffuse share ownership is associated with poor firm performance due to the absence of effective monitoring.
It is difficult to imagine a world without risk bearing entrepreneurs. IT entrepreneurs have revolutionised our lives over the past four decades and the likes of Warren Buffett and Larry Fink have changed the face of the asset management industry.