IN A good market, an investor who is perhaps only in it for a short term view of the market doesn’t much care if he is with a scoundrel or a priest.
This is unfortunate because like it or not there are still plenty of the former out there. In a good market they will behave in an exemplary fashion because, well why not? There’s plently of money to do it.
It’s when the market turns sour that behaviour gets challenged and a long term investor doesn’t want to be left holding the baby with someone who is less than pure.
As times get tougher, the well-run, well-disciplined, properly-governanced companies will thrive at the expense of those who cut corners.
There is a limited amount of capital out there so naturally it is being allocated towards the better customers of the banks.
Relationships are key. Banks aren’t robots. There’s an element of the decision that is not just pure metrics, the banks will take a considered view of whether the management are going to be good stewards of their capital.
But being virtuous doesn’t come cheap.
“Your head would spin if I told you the level of legal and professional fees we incur to ensure that we are compliant,” one prominent director told us recently.
“And the management time.” But ultimately investors are demanding transparency and the bar is only going to be raised higher.
Transparency may be expensive, but as the saying goes — a rising tide lifts all boats.
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