A leading global organization working to promote good corporate governance practices recently recommended that asset holders ask investment firms to comply with requirements of the CFA Institute Asset Manager Code of Professional Conduct. The International Corporate Governance Network, in its ICGN Model Mandate Initiative: model contract terms between asset owners and their fund managers, suggests compliance with Asset Manager Code provisions as part of its model contract terms relating to a manager’s adherence to standards.
The ICGN is a global membership organization comprised of over 500 entities in 50 countries representing over $18 trillion in institutional AUM. The specific reference to the Asset Manager Code in its model contract recommendations demonstrates growing recognition among leading industry practitioners of the value and importance the Code can play for investors seeking a commitment from their investment managers to ethical investment practices and establishing an ethical culture.
The Model Mandate Initiative offers “guidance on areas about which clients may wish to enter into active dialogue with existing and potential fund managers to ensure that their interests are aligned ….” The goal of the ICGN document is to assist asset owners in considering the expectations they should have of their fund managers. It cites key areas of focus for investment firms, including setting out an appropriate internal risk management framework; ensuring adherence to the highest standards of stewardship; and providing appropriate transparency to gain client confidence — all fundamental aspects of the Asset Manager Code.
The ICGN points out that there are existing industry standards that address these areas and the Model Mandate document is intended to supplement such guidelines. The document “offers clauses to reference [these guidelines] in management agreements” including the Asset Manager Code.
The ICGN cites as one of the most significant aspects of the relationship between asset owners and fund managers the adherence to an established statement of commitment or set of principles with which asset owners expect their managers to comply. Such standards “will best be carried into practice in investment terms if they are incorporated in some way into fund manager contracts,” the document states, and this might be accomplished “by requiring adherence in some form.” The proposed model provision for adherence to standards states in part, “The manager will meet the disclosure requirements of the CFA Institute’s Asset Manager Code of Professional Conduct.”
The most effective way to encourage investment firms to develop an ethical culture and commit to managing assets following best ethical practice is through client-driven demand for such a commitment through compliance with a globally recognized, comprehensive, investor-focused code of ethics. The ICGN’s inclusion of the Asset Manager Code in its model provision relating to adherence to standards is the latest example of knowledgeable, sophisticated investors utilizing the Code as a measuring stick for ethical practice.
The ICGN’s Model Mandate Initiative was approved at the organization’s annual general meeting in September after consultation over the course of the year with ICGN members, committees, and the ICGN board. The document is subject to further ratification by IGCN members, and the final version will be published in March 2012.