Quick Take: Misbehaving Managers
Despite Australia’s reputation for strong corporate governance, recent scandals highlight the importance for investors of assessing management behaviour alongside traditional governance standards.
Governance: A False Sense of Security?
- Corporate Australia has traditionally been known for its strong governance practices, operating with remuneration policies and structures that are widely accepted as best practice relative to global peers (top chart).
- While management behavior may be harder to monitor and measure than traditional governance standards, underappreciation of this important predictor may have caught some Australian investors off guard in 2024. Examples include scandals that often attract regulatory scrutiny and lead to director resignations.
Australian Management Scandals Rife in 2024
- 2024 saw numerous management indiscretions across corporate Australia. These events can lead to financial consequences that are inconsistent with shareholders’ interests.
- We calculate the average monthly share price performance difference between companies that ranked the poorest on Acadian’s proprietary management behaviour signal at the beginning of the month and those that ranked the strongest (bottom chart). Companies considered to have misbehaving managers generally underperform their better-behaved peers. This performance difference is significantly larger in Australia in 2024 compared to broader developed markets, and larger than it has been over the prior 10 years.
Average Governance Ratings Across Major Markets
Index-weighted MSCI Governance Pillar Ratings (December 2024)
Acadian Proprietary Management Behaviour Signal
Average Monthly Return Difference Between Bottom- and Top-Ranked Companies
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