Eliminating the costs of disruption

Institutional investors face a rapid and evolving set of responsibilities that can severely impact their ability to focus and fulfill on their long-term strategy if not dealt with in a process-driven way. FCLTGlobal has released a guide for investors, Ripples of Responsibility, to specifically provide procedures around those responsibilities and gives investors tools to understand and fulfill on these responsibilities.

Failing to fulfill on responsibilities can cause staff to be distracted or leadership turnover and interrupt the focus of the investor on the long term.

“You can’t maintain your focus on the long term if you can’t maintain your focus at all,” says Matt Leatherman the report’s author and director at FCLTGlobal. “Fulfilling on your responsibilities is an enabler of your long-term focus when done well.”

In developing the toolkit, FCLTGlobal held workshops with asset owners and managers around six areas of emerging responsibility: economic impact at home and abroad, equity lending and stewardship, investor responsibilities when there is an impasse in corporate engagement, investor responsibility for climate and environmental impact, racial and gender diversity of portfolio companies, and reputation management.

“A lot of change is going on in real time in how the institutions dealt with those particular issues,” Leatherman says. “What stands out is it is normal for there to be an individual or small team who knows their responsibilities. The challenge is turning around and fulfilling that at an organisational level and getting consistency across those functions. That is the standard of responsibility but it is hard to do.”

FLCTGlobal’s paper – whose title is a reference to the ripple effects of not fulfilling responsibilities – provides tools for investors to identify their core responsibilities, determine how expectations become responsibilities, and consider the steps necessary for the fund to meet those responsibilities.

“We believe it’s an individual organisation’s responsibility to say what their responsibilities are because they have different purposes. But purpose is the referee and what determines what you are responsible for, the manner and degree of that responsibility and how you go about it,” Leatherman says. “There are some common responsibilities among asset owners across the world but they are not common because a peer has it but because of similar purpose.”

While collective action among asset owners with a common purpose is useful, the focus of FCLTGlobal’s work is on achieving internal consistency across an orgnisation to achieve their own responsibilities.

“We want to be able to provide a procedure that any institutional investor could pull from the back of the document and put to work. We won’t tell you what your responsibilities are but if you use it you will know what they are and be able to fulfill on them.”

The toolkit includes five steps to operationalise responsibilities and questions to fulfill investor responsibilities.

The five steps to operationalise responsibilities are:

• Taking inventory of current responsibilities
• Anticipating emerging expectations
• Processing emerging expectations
• Fulfilling new responsibilities
• Communicating about responsibilities

“We hope the five steps can be entry point for boards and executes to know the direction to lead. Then the detailed toolkit related to those five steps are the things that staff can put to work to behave consistently to fulfill on the organisations’ responsibilities.”