One of the Largest Independent Investment Managers - Case Study Example

Analysis of AMVESCAP plc This paper is an analysis of AMVESCAP plc (hereafter AVZ, its symbol as listed at the London, New York, and Toronto stock exchanges), a U.K.-based investment management firm with over $450 billion in assets and over 5,000 employees in 19 countries worldwide (AVZ, 2007a). Specifically, we look at how AVZ fulfils and manages its obligations to its stakeholders in terms of ethical business practices and socially responsible corporate behaviour. Using stakeholder mapping, we classify its various stakeholders and the policies of AVZ for dealing with them, and investigate the company's behaviour by comparing its policies, programmes, processes, etc. with shareholder expectations. Who are the AVZ Stakeholders' The stakeholder map of AVZ is determined by its being a publicly-listed enterprise in three countries, a headquarters in one country (England), and clients from all over the world. This means that we can divide AVZ stakeholders (Freeman, 1984) into three groups: "Internal", "External-National", and "External-International". Table 1 summarises all the AVZ stakeholders according to these three basic classifications in relation to ethical business practices and corporate social responsibility. The "Internal" stakeholders are those who work for or are employed by the company, from the lowest (say, a temp secretary) to the highest (Chairman and CEO). Included are the shareholders, or owners of shares of AVZ in the London, New York, and Toronto stock exchanges, and AVZ's customers. Table 1: Stakeholders of AMVESCAP plc Stakeholders of AVZ.L: Ethical Business and CSR Practices for U.K. Head Office Internal External-National External-International Customers Shareholders: London, New York, and Toronto Board of Directors Investment Committee Top Executives and Senior Managers Line Managers and Supervisors Fund Management Research Staff Investment Managers and Brokers Sales staff Support staff: Accounting and Administration Secretaries, Messengers, Janitors, Drivers, etc. Suppliers and Sub-contractors Stock Exchanges: London Financial Services Authority Department of Trade and Industry National government: Executive branch can come up with directives affecting the industry. U.K. Parliament Bank of England Financial Accounting Standards Board (FASB) Institute of Financial Services (IFS): Regulatory body for accreditation of fund managers Chartered Institute for Bankers (CIB) Financial Services Skills Council (FSSC): accredits competence of brokers, sales staff, and managers of financial services firms U.K.-based NGOs and lobby groups, such as Friends of the Earth, WWF, etc. Descendants of customers and shareholders Activist shareholder groups Local media Competitors (Schroders plc) Stock Exchanges: New York and Toronto International Financial Reporting Standards (IFRS): EU-wide accounting standards International NGOs European Union (Brussels) and its Directorate in Finance Other national governments of countries where customers and shareholders live International media People and Communities affected by natural disasters Competitors (FMR, Merrill Lynch) The focus on these two stakeholders is evident from the opening statement of its CEO in the latest Interim Report (AVZ, 2006a, p.1): "AMVESCAP continues to make good progress in our efforts to become a premier global investment management organization for our clients and shareholders." This can be classified as its mission, whilst its vision is captured by the words that appear below its corporate logo: "Helping people worldwide build their financial security". Still under this first group but next to the two most important stakeholders are the employees whose classifications are clear-cut as to behavioural standards established by the company. The "External-National" stakeholders include those who do business with the company, such as suppliers and sub-contractors, public and private institutions that perform specific regulatory functions over AVZ, and all other groups that may have a direct or indirect influence over how the company is run and managed (Williamson, 1996). Examples of the last group are descendants of AVZ customers who may have a stake in the way the funds are managed and the mass media, which can make life difficult for any company. The "External-International" stakeholders are similar to those under the "External-National" classifications, but which affect the headquarters because some pressure groups and financial services regulatory bodies have an international reach that can influence how the company is run or how the public would perceive its image in any of the countries where AVZ maintains its offices. The suppliers and sub-contractors are classified as part of the "External" stakeholders because they are not bound by the same strict standards established by AVZ's fiduciary duty that applies only to its employees (Barley et al., 1997). AVZ being in an industry that is highly-regulated, not only at home but abroad, the company has to comply with a host of regulations and requirements to ensure that it does its job responsibly. Abundant news of recent financial scandals all over the world shows that this continues to be a problem. Entrusting one's wealth and future to a company is a delicate matter, and this is the reason why companies such as AVZ develop what it hopes is an iron-clad, stringent set of standards of how its employees should behave. Solomon (1995) characterised banking and financial management as a confidence game where the relationship between the company and its customers is so fragile that at the first sign of trouble, customer panic can ensue and result in a contagion that most financial services and investment management firms can never survive as clients withdraw their funds faster than the company could liquidate its investment positions. Theory: Ethical Practices of AVZ AVZ's Code of Conduct is contained in a 24-page document available to anyone from the company website (AVZ, 2007b). The document begins (p. 1) by specifying AVZ's core purpose and mission: its purpose or vision is to "help people worldwide build their financial security" whilst its mission is "to deliver superior investment performance worldwide". AVZ supports the purpose and mission with three core values: working with integrity, respecting their employees and clients, and empowering people. It has developed the Code of Conduct to assist everyone in accomplishing the core purpose and mission. It defines who are bound by the Code, the so-called "Covered Persons" who are all the officers and employees of AVZ and its subsidiaries, and the standards of behaviour expected in dealing with each other (with respect and consideration) and with their clients (with integrity and commitment and with their interests being given top priority), and in acting within their communities (with responsibility as a corporate citizen). The Code opens with a firm reminder that "one person's misconduct can damage the entire company's hard-earned reputation and compromise the public's trust" (p.2) and appeals for the need to abide strictly by its provisions. This is reassuring for customers and shareholders, more so because the Code is available to anyone, and there is a provision for whistle blowing in case of violations (pp. 3 and 19-22). On top of this Code, AVZ has a separate set of additional policies for lawyers and executive officers (p. 3). What does the Code cover' Almost everything, from compliance with laws, rules and regulations at the office, community, local, national, and international levels to substance abuse, conflicts of interest, doing business in countries under government sanctions, sexual harassment, money laundering, etc. There were a total of twenty-six general situations that are foreseen, with clear guidelines for each, not too detailed because the company assumes that its employees are intelligent enough. AVZ also has policies and processes in place for its asset investment managers with guidelines on how much risks they can take and how to report their fund positions on a regular basis (AVZ, 2007a). There is a system for seeking guidance in case of doubt (p. 20), either from the immediate supervisor or if this would not be appropriate, a higher authority or through a toll-free line anonymously. The compliance process is also simple and clear, which means that violations or doubts can be investigated promptly and with due process. The problem with codes of this type is that personal grudges commonplace in every office may have a way of getting out of hand should one party decide to do so. There are no provisions, however, for abuses of reporting violations. One possible reason for this is to encourage workers to be open with observations and doubts and to err on the side of caution, instead of threatening reprisals in case the reported violation turns out to be mistaken. If AVZ and the staff members and managers that look into the matter are good at their work, then this should not be a problem because due process will surely be followed. The Code allows for waivers, which is an escape clause in case there are unforeseen events, provided the waiver is meant to alleviate undue hardships, is not inconsistent with the purposes and objectives of the Code, will not go against the interests of clients or the company's interests, and would not result in a violation of laws and regulations. There is also a clear procedure for getting waivers for both executives and other employees (pp. 22-23). Practice: Walking the Talk' There are many ways of finding out if AVZ and its employees practice what they preach. Are they delivering value to shareholders' Based on the stock price and earnings as of the end of 2006, it has increased its revenues, net profits, and earnings per share, which are all signs of creating shareholder value. It has done this by cutting down on expenses and by increasing the amount of assets under management through improved and more efficient marketing and sales practices (AVZ, 2006, p. 3-4). Its shareholders, divided almost evenly in America and the U.K. (44% and 41%) with the balance coming from Canada (7%) and the rest of the world seem to have no unusual complaints about the company. It also delivered value to its clients, as investment income increased year-on-year by almost 57% whilst fees from fund management decreased by 6% (AVZ, 2006, p. 6). This is how the company delivers on its mission of managing its clients' funds for the future. By the way, AVZ reports its financials in U.S. dollars because more than 50% of its funds come from clients in America. In 2003, AVZ's INVESCO Funds Group based in Denver was investigated, and found guilty, of market-timing activities. This involved agreements where large investors were allowed to trade in-and-out to take advantage of the inefficiencies in once-a-day mutual fund pricing, to the detriment of long-term shareholders. The ensuing investigation tarnished the name and forced AVZ to take a fourth quarter charge (Locke, 2003). But for now, AVZ seems to be walking the talk according to the high standards of ethical behaviour, its code of conduct being upheld by its employees, its clients and shareholders satisfied, and that the system currently in place is working. Though its name was affected by the market-timing scandal, the image now of AVZ is that of a professionally-run enterprise where competent professionals at all levels work and delivers value to shareholders and clients, and provides a good working environment for its employees. How about its external (national and international) stakeholders' The company's stock is one of the components of the FTSE 100 index, where belonging is a sign of prestige and solid business performance (FTSE, 2005, p.43-44). These stocks are watched very closely for the most "insignificant" disclosures by the Stock Exchanges, other competitor fund managers, and the media as would be normal in a capitalist society. Then again, AVZ seems to be following all the rules and meeting all the external standards of public and private regulatory bodies in a way that is consistent with its reputation as an ethical, trustworthy provider of investment services. In all probability, where AVZ is proudest of relating to its various stakeholders is in the way they serve the communities where they have offices. Its claim of being an equal opportunity employer can be seen from its website photographs of employees of different nationalities and genders working together. Of course, we can assume these are photos of real employees since there would be howls of protest from competitors, anti-capitalists, and concerned citizens from any of the 19 countries where the company does business. It backs up its claim of investing in communities by showing on its website how their employees and suppliers have been involved in raising funds for the rehabilitation of disaster-stricken areas all over the world, for social projects for the poor and the youth, improvement of literacy, sports awareness, and building houses for poor communities. AVZ has an Environmental Policy (AVZ, 2007c) also available from its website where it lays shows how it has performed in the areas of ISO compliance, energy conservation, sustainable use of natural resources, and environmental restoration. It even specifies (p.1) senior manager in-charge of this initiative, the Company Secretary. However, we found no information as to whether its funds are invested in companies that have poor environmental management records, such as those that produce toxic or polluting waste. Conclusion Many established financial services firms have a Code of Ethics, an Environmental Policy, and Investment Guidelines as part of the way they play the confidence game and meet the needs of stakeholders. As its past experience with the market-timing scandal has shown, having such a Code is one thing, and implementing them another. An investigation and analysis into the practices of AMVESCAP show that the company to-date is fulfilling the needs of its internal stakeholders - owners or shareholders, clients, and employees - and the whole range of external stakeholders from suppliers to regulators. The company seems equally faithful in practicing corporate social responsibility, getting involved in community projects and taking an active role in energy conservation and environmental care. However, AMVESCAP may have to explore the possibility of investing only in companies with standards of behaviour and social responsibility that are as demanding and stringent as its own. Bibliography AVZ (2006) "A world of opportunity". 2006 interim report. London: AMVESCAP plc. AVZ (2007a) "Company history". AMVESCAP plc website. Available from: [Accessed 12 March 2007]. AVZ (2007b) Code of conduct (Revised: July 2006). London: AMVESCAP plc. AVZ (2007c) Environmental policy. London: AMVESCAP plc. Barley, S. and Tolbert, P. (1997) Institutionalization and structuration: studying the links between action and institution. Organization Studies, 18 (1), p. 93-117. Freeman, R. E. (1984) Strategic management: A stakeholder approach. Boston: Pitman. FTSE (2005) ASWB: All-Share Index Weightings Book. London: London Stock Exchange and Financial Times. 30 November 2005. Locke, T. (2003) "Market-timing scandal marks financial year". The Denver Business Journal, 26 December 26, 2003. Available from: [Accessed 12 March 2007]. Solomon, S. (1995) The confidence game. New York: Simon & Schuster. Williamson, O. (1996) The mechanisms of governance. Oxford: Oxford University Press. 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