Fund manager Hermes Investment Management has called for enhanced corporate governance for private infrastructure assets, in order to improve outcomes for investors, employees and other stakeholders.
In a new paper on the topic, Hermes outlined two key areas which it said can help close the governance gap at private infrastructure assets. These are the composition of the board, which in contrast to publicly-listed companies, can be dominated by a minority of shareholders, creating conflicts of interest and a lack of board diversity. Hermes therefore has called for reviews of board effectiveness on an initial and periodic basis, and the appointment of independent chairs, as well as a minimum number of independent directors.
The second area Hermes highlighted is shareholder value, where it said there is evidence of well-governed companies producing higher long-term returns. It has recommended the use of stakeholder committees, better alignment of remuneration and transparency and disclosure of key non-financial information, to reinforce accountability and good practice.
Hermes head of infrastructure, Peter Hofbauer, commented: “A clear best-practice reference point for the governance of privately-owned essential service businesses that helps to articulate and align the objectives of government, private investors and the public, can only be beneficial.”