When the leader of a G-7 country is recovering after being admitted to the ICU, it’s clear that anyone can catch Covid-19. However, when James Gorman, the CEO of Morgan Stanley, caught the virus, he only informed the Morgan Stanley board of directors. The first that shareholders or MS customers (including many hedge funds) knew about his illness was when Reuters reported on a 10 minute video posted to the firm’s employees – which was the first time they found out too. This raises a key due diligence question: should asset managers disclose staff illnesses - and what should investors do with that information?
The obvious answer is yes, managers should tell investors. But – as with many diligence issues in the Covid crisis - it is helpful to take at least one step back and consider the question more thoughtfully. Even if an investor does decide that the answer is still “yes”.
Castle Hall first published comments on Covid-19 on February 14…which feels an awful lot more than just two months ago. We concluded with a point we still stand by: "Above all, though, coronavirus is not a time for "gotcha" ODD. Rather, this is a time when everyone in the asset management community can collaborate to share ideas and best practices. Working together, we can help protect our colleagues and their families, and support our businesses across the industry."
The danger, of course, is that an ODD team excitedly telling their CIO that the PM of manager 31 out of 84 has got the virus could be simply that…gotcha. What matters is what you actually do with that information - in a way which is constructive and value add.
Let’s think through some issues:
His disclosure in a 10-minute video emailed to staff is one example of how and when financial firms are choosing to disclose sensitive health information during a global pandemic that has sickened half a million people, upended the global economy, and put banks at the center of relief efforts for any potential recovery.
The U.S. Securities and Exchange Commission requires public companies to disclose material facts to the public, but there is widespread debate about when corporations must disclose information about the health of an executive, corporate governance lawyers said.
Last month, Jefferies Financial Group Inc CFO.N disclosed its chief financial officer, Peg Broadbent, died of complications related to the coronavirus.
Perella Weinberg Partners LP founding partner Joseph Perella also tested positive for the coronavirus and recovered after treatment, said a person familiar with the matter who was not authorized to discuss the information publicly.
A spokeswoman said it is the firm’s policy not comment on the health of its employees.
In contrast, JPMorgan Chase & Co (JPM.N) disclosed that Chief Executive Jamie Dimon had emergency heart surgery within hours of the event happening last month.
Other CEOs – including Juan Domingo Beckmann Legorreta of Jose Cuervo tequila-owner Becle (CUERVO.MX), Jeff Shell of Comcast-owned NBC Universal (CMCSA.O) and Glenn Fogel of online travel agency Booking Holdings – each received diagnoses of coronavirus infections and disclosed them shortly after.
Gorman’s staff-wide video was the first time Morgan Stanley shared with anyone beyond the board room and executive suite that its CEO had tested positive for the respiratory disease. It became public knowledge once news outlets including Reuters learned of the message.
So – should a manager tell their investors if a member of their team has Covid-19?
In our view, yes – if an asset manager chooses to sell services to large asset owners who have fiduciary responsibilities and are often themselves regulated, then the manager should recognize that their customers have a need to know. But, equally, investors should be working with their managers to mutually protect assets and collaborate to navigate these unprecedented times. There are no simple answers to complex questions right now – and this is not a time for gotcha.
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