Taxpayers Benefit if Governments Emphasize Shareholder Role in Managing Equity Stakes in Financial Institutions
Forum working paper suggests ways for government to best manage and resolve new equity stakes in financial institutions
US$ 700 billion is at stake as well as stability and growth of the global financial architecture
Paper (PDF, 32 pages, 2.77 MB) is part of year-long Forum collaboration with over 150 leaders in public policy, academia and business
New York, 2 December 2009 – Taxpayers will benefit most if governments put shareholder responsibility ahead of political considerations when it comes to managing their equity stakes in financial institutions. With over US$ 700 billion of taxpayers’ money invested, the wrong choices – in policy objectives, management strategy, or emphasis in execution – could cost taxpayers billions of dollars and have long-term implications for the stability of the global financial architecture.
The challenges facing governments managing and resolving these newly acquired equity interests in financial institutions are explored in a new working paper from the World Economic Forum in collaboration with Oliver Wyman entitled Governments as shareholders: navigating the challenges of newly held interests in financial institutions. Over 150 leaders in public policy, academia, and business collaborated as part of a year-long study.
Their discussions raised six key suggestions for governments:
1. Address equity stakes separately from other types of crisis intervention
2. Aim for a rapid exit whilst protecting investment value
3. Establish an independent process to manage ownership stakes
4. Restrict government influence on owned institutions to board-level issues
5. Be realistic about securing and incentivizing the best available talent
6. Raise transparency beyond public disclosure of financial performance
The paper draws further attention to three of these key areas:
Transparency – OECD and IMF work relating to Sovereign Wealth Funds offers potential models for governments looking to increase accountability and transparency in their role as shareholders. Opening communication between the complex network of stakeholders is not only important to maintain trust and confidence, but also to minimize market distortions and increase accountability for government managers of investments in financial institutions.
Governance – Appropriate governance can ensure managerial independence, business focus and political accountability.
Leadership – Strong management teams will be needed to run these institutions and protect taxpayer investments. Governments must seek out managers with skills appropriate to the task, incentivizing them for their work and empowering them to be successful.
“The recommendations provide key support to rethinking how governments, acting in the public interest, can best go about managing and resolving their newly held interests in financial institutions,” said David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, who chaired a steering committee comprised of 15 leading academics and industry practitioners from the Forum’s investors and financial services communities.
“Much time and energy is being devoted to discussing important issues of economic and regulatory policy. However, resolving government equity stakes in financial institutions is a critical piece of rebuilding the financial architecture that is currently being neglected in the public discourse,” said Paul Achleitner, Member of the Board of Management, Allianz SE.
Max von Bismarck, Director and Head of Investors at the World Economic Forum added: “As the global economy recovers, governments find themselves transitioning from a focus on crisis containment to a focus on managing its interventions towards eventual resolution. With over US$ 700 billion of new equity investments in financial institutions, governments and the taxpayers they represent, have a strong vested interest in ensuring that these investments are properly managed.”
“Government officials, with the support of private sector experts, must ensure that the same principles that define good management in the private sector – leadership, governance and transparency – are applied in this current public sector situation. And getting it right is crucial; not only is considerable taxpayer money at stake, but so is the long-run soundness of the financial system,” said Julia Hobart, Partner at Oliver Wyman and Senior Adviser to the working paper.
This working paper is part of the World Economic Forum’s New Financial Architecture project of the Industry Partnership programme and was mandated by the CEOs of the companies participating. It is the first of five related publications related to Financial Institutional issues which will be published over the coming several months as part of the Financial Services and Investors Industry Partnership programmes. Together these publications will give a broad range of proposals and insights into different elements of the crisis.
The Working Paper Steering Committee
Paul Achleitner, Member of the Board of Management, Allianz SE
Sameer Al Ansari, Chief Executive Officer, Dubai International Capital LLC
Sir Howard Davies, Director and Head, London School of Economics and Political Science
Robert E. Diamond Jr, President, Barclays Plc
Volkert Doeksen, Chief Executive Officer and Managing Partner, Alpinvest Partners
Tolga Egemen, Executive Vice President, Garanti Bank
Jacob A. Frenkel, Vice Chairman, American International Group; Chairman, The Group of Thirty (G30)
Johannes Huth, Managing Director, KKR & Co Ltd
Antony Leung, Senior Managing Director and Chairman of Greater China, Blackstone Group (HK)
Scott McDonald, Managing Partner, Oliver Wyman
Daniel Och, Founder and Chief Executive Officer, Och-Ziff Capital Management Group LLC
David M. Rubenstein (Chair), Co-Founder and Managing Director, The Carlyle Group
Heizo Takenaka, Director, Global Security Research Institute, Keio University
Tony Tan Keng-Yam, Chairman, Government of Singapore Investment Corporation GIC
Ruben K. Vardanian, Chairman of the Board and Chief Executive Officer, Troika Dialog Group
Forum working paper suggests ways for government to best manage and resolve new equity stakes in financial institutions
US$ 700 billion is at stake as well as stability and growth of the global financial architecture
Paper (PDF, 32 pages, 2.77 MB) is part of year-long Forum collaboration with over 150 leaders in public policy, academia and business
New York, 2 December 2009 – Taxpayers will benefit most if governments put shareholder responsibility ahead of political considerations when it comes to managing their equity stakes in financial institutions. With over US$ 700 billion of taxpayers’ money invested, the wrong choices – in policy objectives, management strategy, or emphasis in execution – could cost taxpayers billions of dollars and have long-term implications for the stability of the global financial architecture.
The challenges facing governments managing and resolving these newly acquired equity interests in financial institutions are explored in a new working paper from the World Economic Forum in collaboration with Oliver Wyman entitled Governments as shareholders: navigating the challenges of newly held interests in financial institutions. Over 150 leaders in public policy, academia, and business collaborated as part of a year-long study.
Their discussions raised six key suggestions for governments:
1. Address equity stakes separately from other types of crisis intervention
2. Aim for a rapid exit whilst protecting investment value
3. Establish an independent process to manage ownership stakes
4. Restrict government influence on owned institutions to board-level issues
5. Be realistic about securing and incentivizing the best available talent
6. Raise transparency beyond public disclosure of financial performance
The paper draws further attention to three of these key areas:
Transparency – OECD and IMF work relating to Sovereign Wealth Funds offers potential models for governments looking to increase accountability and transparency in their role as shareholders. Opening communication between the complex network of stakeholders is not only important to maintain trust and confidence, but also to minimize market distortions and increase accountability for government managers of investments in financial institutions.
Governance – Appropriate governance can ensure managerial independence, business focus and political accountability.
Leadership – Strong management teams will be needed to run these institutions and protect taxpayer investments. Governments must seek out managers with skills appropriate to the task, incentivizing them for their work and empowering them to be successful.
“The recommendations provide key support to rethinking how governments, acting in the public interest, can best go about managing and resolving their newly held interests in financial institutions,” said David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, who chaired a steering committee comprised of 15 leading academics and industry practitioners from the Forum’s investors and financial services communities.
“Much time and energy is being devoted to discussing important issues of economic and regulatory policy. However, resolving government equity stakes in financial institutions is a critical piece of rebuilding the financial architecture that is currently being neglected in the public discourse,” said Paul Achleitner, Member of the Board of Management, Allianz SE.
Max von Bismarck, Director and Head of Investors at the World Economic Forum added: “As the global economy recovers, governments find themselves transitioning from a focus on crisis containment to a focus on managing its interventions towards eventual resolution. With over US$ 700 billion of new equity investments in financial institutions, governments and the taxpayers they represent, have a strong vested interest in ensuring that these investments are properly managed.”
“Government officials, with the support of private sector experts, must ensure that the same principles that define good management in the private sector – leadership, governance and transparency – are applied in this current public sector situation. And getting it right is crucial; not only is considerable taxpayer money at stake, but so is the long-run soundness of the financial system,” said Julia Hobart, Partner at Oliver Wyman and Senior Adviser to the working paper.
This working paper is part of the World Economic Forum’s New Financial Architecture project of the Industry Partnership programme and was mandated by the CEOs of the companies participating. It is the first of five related publications related to Financial Institutional issues which will be published over the coming several months as part of the Financial Services and Investors Industry Partnership programmes. Together these publications will give a broad range of proposals and insights into different elements of the crisis.
The Working Paper Steering Committee
Paul Achleitner, Member of the Board of Management, Allianz SE
Sameer Al Ansari, Chief Executive Officer, Dubai International Capital LLC
Sir Howard Davies, Director and Head, London School of Economics and Political Science
Robert E. Diamond Jr, President, Barclays Plc
Volkert Doeksen, Chief Executive Officer and Managing Partner, Alpinvest Partners
Tolga Egemen, Executive Vice President, Garanti Bank
Jacob A. Frenkel, Vice Chairman, American International Group; Chairman, The Group of Thirty (G30)
Johannes Huth, Managing Director, KKR & Co Ltd
Antony Leung, Senior Managing Director and Chairman of Greater China, Blackstone Group (HK)
Scott McDonald, Managing Partner, Oliver Wyman
Daniel Och, Founder and Chief Executive Officer, Och-Ziff Capital Management Group LLC
David M. Rubenstein (Chair), Co-Founder and Managing Director, The Carlyle Group
Heizo Takenaka, Director, Global Security Research Institute, Keio University
Tony Tan Keng-Yam, Chairman, Government of Singapore Investment Corporation GIC
Ruben K. Vardanian, Chairman of the Board and Chief Executive Officer, Troika Dialog Group
No comments:
Post a Comment