Acadian examines what management behaviour signals to investors
Matt Picone
Investors should pay closer attention to management quality and corporate governance in 2025 to ensure they are not caught off guard by the misbehavior of CEOs and senior executives, which have the potential to curb investment returns, according to research by global systematic investment manager, Acadian Asset Management.
Secret affairs, sexual harassment and systemic abuses of power were some of the scandals that engulfed Australian companies in 2024.
Events like these may impact company valuations, demonstrating the importance of having the right checks and balances in place to ensure that management behave in a way that is aligned to shareholders’ interests, said Matt Picone, Portfolio Manager at Acadian Australia.
“When making investment decisions, it’s important to consider corporate behaviour and culture. These measures go deeper than the glossy statements and usual governance metrics quoted in annual reports,” he said.
Based on research by Acadian, companies with poorer corporate behaviour and culture have consistently under-performed their peers both in Australia and globally.
Acadian observed this trend in the group’s management behaviour factor signals in 2024.
“This underperformance wasn’t necessarily because of public scandals, and it is difficult to predict such events, however, there can be red flags that may point to corporate executives not acting in shareholders’ interests and this may lead to negative behaviour,” Picone said.
“Not only did companies that scored poorly at the start of the year become more involved in negative events that played out in the media, but they also significantly under-performed from a share price perspective.”
In the past year, an array of management indiscretions impacted Australian listed companies including misuse of company resources for personal interest, bullying and harassment, failed whistleblowing procedures, undisclosed investments, and systemic breaches of professional conduct.
Regardless of the truth behind incidents, Picone noted that such events and speculation had potential financial consequences including loss of momentum, project delays, earnings and revenue downgrades, share price volatility, and weak investor sentiment. LEVEL 9, SUITE 3, 20 MARTIN PLACE, SYDNEY NSW 2000 //// ACADIAN-ASSET.COM Acadian Asset Management (Australia) Limited – ABN 41 114 200 127 – AFSL No. 291872
In many cases, they attracted regulatory attention and director resignations.
While corporate Australia exhibited strong governance practices, with the average governance rating of Australian companies currently higher than the company average in other major regional and global market indexes, based on MSCI Governance Pillar Scores, Picone said investors should not be lulled into a false sense of security.
“Australian investors could be forgiven for thinking that they don’t need to worry too much about the quality of management, however, the behaviour of CEOs and senior executives both in the office and outside, although more challenging to observe, is a critical component in measuring a company’s overall management quality,” he said.
