Role of governance in GFC offers lessons for the future: Gonski
A number of failures of governance at a director and investor level contributed to the global financial crisis (GFC), offering a number of lessons for the future, according to Investec Bank chairman David Gonski.
Speaking at an Association of Superannuation Funds of Australia (ASFA) function yesterday, Gonski, who is also chairman of the Australian Securities Exchange, said a key lesson from the GFC was a “failure of directors and investors to think for the long term”.
“It’s my contention that this short-termism in outlook is one of the culprits that brought us to the point of great global financial crisis.
“This (outlook) is something we’ve got to try and overcome as it creates short-term investment and also creates short-term thinking in the things we invest in.”
A second lesson in governance to have emerged in the GFC was the dependence on ‘so-called experts’, he said.
“We have to apply our own thinking in future, and by that I am not advocating we should listen to so-called experts, but I believe we have in the past too slavishly relied on what was said by experts as gospel.”
Yet another lesson was a tendency in terms of governance to have “opted for complexity of product, be it highly geared infrastructure-type bonds, or special types of unit trusts and so on”.
“A lesson we need to learn is complexity often is the work of financial engineers — engineering returns beyond the ability of the underlying business to support the returns that are actually being given.
“I think for now the securities to be issued will return to the less complex, but I would not be surprised if in 10 to 15 years we aren’t regretting a complexity of product all over again,” he said.
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
