Colin Melvin has had a long career advising and representing institutional investors and pension funds. In previous roles he was responsible for corporate governance at Standard Life Investments, and was head of corporate governance and responsible investment at Baillie Gifford. Here he talks of the responsibilities of international investors.
Colin founded Hermes Equity Ownership Services Ltd 12 years ago and remains at the helm as CEO today. The firm advises companies on corporate governance, attitudes, behaviour and sustainability on behalf of long-term investors, issues that are especially critical for firms operating in emerging and frontier markets.
Colin’s expertise led him to participate in the drafting of the UN’s Principles for Responsible Investment, and he is involved in a number of investor groups and UK initiatives, such as the Performance Pay Group and Socially Responsible Investment Forum.
Melvin is a staunch advocate for sustainability, long-term investment and stewardship and acknowledges the importance of developing and exporting best practice, especially in emerging markets.
Ahead of The Global African Investment Summit, where Colin will be speaking on the role of foreign direct investment in Africa, he offered his thoughts on institutional investment and the promotion of good standards in the sector.
Long-term investors, he argues, have exactly the same interests as governments and wider societies, the “process of inward investment into Africa … needs to be handled in a way that supports the development of these economies because that is in all of our interests in the longer run”.
African governments need, therefore, to be looking to attract companies and businesses that have this long-term vision. Patient capital is more likely to have their interests aligned with host countries than those who are looking for quick returns.
For Melvin, investors are the stewards of the businesses they own; shareholders thus have a responsibility to shape these businesses into long-term thinkers. It is an area, he argues, where we all will benefit, through the investments we directly and indirectly hold.
“There is a huge opportunity to mobilise that public interest in good corporate and sustainable behaviour,” he insists. In Africa, as elsewhere, this includes addressing issues such as bribery, corruption and labour rights. From a long- term perspective, the success of emerging market economies is vital for companies who need to see growing demand, healthy workers, continued investment and so forth.
Governments also have a responsibility, both in attracting investors with the right mentality and in setting up the regulatory framework that successfully supports best practice.
Melvin is a pragmatist and realises that we must be “careful in supposing that [there is] a right model for everyone”. Similarly the actual ability to enforce good regulations is a genuine challenge, laws can be good but if they are not applied on the ground can be self-defeating.
African governments need to be sure of capacity in administration, monitoring and enforcement to foster the right investment environments. “Governments shouldn’t simply resort to the lowest common denominator,” for attracting investors, “they should be looking for good quality investment and understand that behaving well will lead to a better outcome”.
Difficulties and challenges shouldn’t be excuses for a relaxed attitude, and Melvin is clear that he advises companies to “export their good practices from one market to another”.
While Melvin’s beliefs on corporate behaviour are framed in a long-term understanding of investment and society, the business case in the short term is strong as well; “Companies that have better governance will generally attract better investment at a lower cost of capital.”
For Melvin, investors, businesses and governments all share the task of creating strong economies through the promotion of and adherence to responsible business practice. At the Global African Investment Summit, Colin will be speaking alongside representatives from each of these areas discussing this and many other aspects of successfully doing business in Africa.