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For a press release providing details of the investor survey referenced below, see


The Harvard Corporate Governance Blog, November 25, 2008 posting


Investment professionals blame bank leaders and want global consultation on new financial system

Posted by Andrew Tuch, co-editor, Harvard Law School Corporate Governance Blog, on Tuesday November 25, 2008 at 10:34 pm


(Editor’s Note: This post comes to us from William Russell-Smith of AQ Research.)

Over the past few months financial markets have been through a traumatic experience. The traumatic experience equally applies to the participants. Not only are firmly held convictions overturned, models proved useless and careers destroyed, but the industry now faces a period of public scrutiny and social accountability that it has never before experienced.

The main question for proponents of sustainable financial markets is how can the lessons from these events be embedded in future behavior? A further question is about the appropriate regulatory response. This has been taken up by the Network for Sustainable Financial Markets.

The voice of the individual investors has not been well represented in the debate. The NSFM decided to survey anonymously investment professionals about the causes, cures and consequences of the financial crisis. This was undertaken pro-bono by AQ Research during October 2008.

The results show that financial market participants clearly recognize they have a significant responsibility for the situation - more or less on par with bankers and regulators. Additionally they see the need for investor involvement in solving the problem and recognize that the investor voice is currently much less effective than it should be. It is interesting that the expectation is that CEOs and investment professionals will take the lead here, not trade associations or ESG / RI specialists.

Governance failing is an important theme running through the results- bank boards not controlling their employees’ risk positions, shareholders permitting incentives unconnected with risks, fund managers neglecting their duties to understand product risk. Encouragingly 60% of respondents (who were broadly mainstream rather than ESG specialists) intend to exert greater governance in future and be more active as owners.

However, some worrying features emerge. Investors see politicians, regulators and central bankers as the way forward, showing that the industry is most comfortable operating within guidelines. This is a disappointing result for believers in responsible, sustainable markets.

A clear majority also acknowledges that today’s cures have encouraged moral hazard. A strong sense emerges that things have to be different - only 11% are not planning to make any change. What is worrying is that across all the answers, we see little difference between the view of experienced market participants and those who have little experience of booms and busts. The industry is clearly very intelligent and has thought about bubbles, but if this does not result in real learning and change, the sector is destined to keep reliving old mistakes.

We believe that the long term interests of beneficiaries (i.e. providers and users of funds, not intermediaries) have to be placed at the centre of investment decision making. Regulation should support this principal, rather than restrict this vitally important industry.

More details of the survey results are available at and



© 2008 The President and Fellows of Harvard College




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