Business Audit

The rise of pension funds as dominant owners represents one of the most astonishing changes in economic history. Even the largest American pension fund owns too small a share of any company’s capital to control it. Not being commercial companies, the funds do not have access to detailed commercial or business information. They are not focused on business, nor could they be; they are asset managers. However, funds need deep economic analysis of the activities of the companies they collectively own. They also need an institutional structure that controls management activities. I suspect that eventually we will develop a formal practice of business auditing, similar to the financial audit by independent professional accounting firms. Since it is not necessary to conduct a business audit every year (in most cases doing it once every three years is sufficient), it should be based on certain standards and include a systematic assessment of the firm’s activities: goals and strategies, marketing, innovation activities, productivity, profitability growth. TIP OF THE DAY Do you know which pension funds are shareholders in your company? What system do they use to obtain information about its activities?