As an investor, for
nearly ten years we have systematically given extra weight in our portfolios to
companies practising the best corporate governance; we have also fostered
dialogue with companies that listen to their shareholders with a view to
improving their practices.
Paradoxically,
although a number of academic studies have questioned the relevance of the
“good” governance criterion for determining a company’s market value, certain
grass-roots analyses have shown that good governance is a leading indicator of
a company’s health. The performance of our Proxy Active Investors fund over the
past three years shows that, for the moment, a portfolio that overweights
“good” governance companies outperforms the market.
The recent nosedive
taken by the PSA Peugeot Citroen share is therefore highly disconcerting: this
company practises “good” governance and its directors and principal
shareholders have for many years encouraged dialogue with all stakeholders.
The French government
voiced its concerns in no uncertain terms after PSA’s decision to close some of
its factories in France ,
including the Aulnay plant north of Paris
For several years
now, all industry stakeholders have realised that many car manufacturing plants
like Aulnay were doomed and that the directors were systematically putting off
the decision to close them, either because they thought they could continue to
prioritise France for car manufacturing (which Renault didn’t do, even though
the French government is one of its shareholders …) or because stakeholder
lobbying prevented them from taking such a decision in the interests of a
certain kind of social solidarity …
Analysts have put
forward various reasons for PSA Peugeot Citroen’s share price plummet, including
the company’s excessive dependence on the French and European markets (but what
were they saying two years ago?), its sluggish growth in all emerging markets (but
what about Brazil and China?), the impossibility of being “too” small and the
risks resulting from its strategy of multi-brand alliances (but did they have
any choice?), the difficulty of moving the model range upmarket (what about Citroen?),
etc.
As an investor, we
know that the path to growth is not a smooth one, that risks need to be taken
in favour of long-term vision and that, above all, directors and principal
shareholders must listen to what all their stakeholders have to say with regard
to how they implement their long-term strategy. Aren’t these the ingredients of
good corporate governance? And shouldn’t we be supporting companies that
embrace this vision, especially when the going is tough?
Olivier de Guerre
Chairman of PhiTrust Active
Investors
