1. A nice round-up of developments in 2009 from Penny Shepherd.
2. Via CorpGov.net this interview on short-termism.
3. A much better take on the X-Factor thing than I managed from AVPS.
Wednesday, 23 December 2009
Monday, 21 December 2009
Leverage, ownership etc
The Michael Jensen book I'm reading at the moment is really interesting for a couple of reasons. Firstly, because the essays in it form a coherent and clearly-argued perspective on governance. It's not a perspective I share, but it's definitely one of those books that I'm glad I read because it challenges some of my assumptions/prejudices. He's not an advocate of co-determination...!
Secondly, it's interesting to read older stuff from someone who thought they had discovered a significant trend when you know how things turned out subsequently. Famously, Jensen was very positive about the first big wave of leveraged buyouts because he though they were bringing a much more efficient management approach to US corporations.
This wasn't just the idea that buyouts address the diffusion of ownership, and hence go a long way to address the agency problem (which Jensen has obviously written a great deal about), but also the leverage bit of it. To simplify quite a bit, he argues that by taking on more leverage effectively management thinking becomes more focused because of the threat of bankruptcy. I'm sure there is truth in that, but it seems a pretty extreme approach to incentivisation.
Similarly some of the discussion around compensation feels very optimistic (strange word to use maybe) about the potential to get people to do the right things and think the right way. He obviously was a big influence in terms of the growth of options in compensation - a development many would now query in terms of its positive impact.
There's obviously a lot of sensible stuff in the book, but some of it feels very dated now we know how some of the trends turned out.
Secondly, it's interesting to read older stuff from someone who thought they had discovered a significant trend when you know how things turned out subsequently. Famously, Jensen was very positive about the first big wave of leveraged buyouts because he though they were bringing a much more efficient management approach to US corporations.
This wasn't just the idea that buyouts address the diffusion of ownership, and hence go a long way to address the agency problem (which Jensen has obviously written a great deal about), but also the leverage bit of it. To simplify quite a bit, he argues that by taking on more leverage effectively management thinking becomes more focused because of the threat of bankruptcy. I'm sure there is truth in that, but it seems a pretty extreme approach to incentivisation.
Similarly some of the discussion around compensation feels very optimistic (strange word to use maybe) about the potential to get people to do the right things and think the right way. He obviously was a big influence in terms of the growth of options in compensation - a development many would now query in terms of its positive impact.
There's obviously a lot of sensible stuff in the book, but some of it feels very dated now we know how some of the trends turned out.
Rage Against My Age
OFF-TOPIC....!
There are a lot of reasons NOT to think that the campaign to get Killing In the Name to number one for xmas is a good thing. It's a pretty empty gesture, it smacks more than a bit of musical snobbery, you could just give your money to charity if you want to make a worthwhile point and so on. But let's be honest, they're all rubbish reasons really given the result, aren't they?
Much as I want to be sensible and level-headed about this bizarre 'campaign' I can't get away from the fact that a pretty decent song by a band who are very political (though never been a big fan to be honest) stopped yet another manufactured pop 'sensation' from being number one at xmas. As limited a gesture as it is I can help but feel a little happier because RATM won. I still can't resist the idea that it's a bit of a two fingers, not just to Simon "walking fart cloud of bad taste"* Cowell, but also to rubbish xmas singles generally.
Of course the really sad thing about it is that many of the copies of the RATM track will have been downloaded (let's be realistic!) by middle-aged blokes thinking they are "keeping it real" by preventing teeny pop fans from getting their favourite to the top of the charts at xmas. To which I plead guilty.
* (c) Charlie Brooker
There are a lot of reasons NOT to think that the campaign to get Killing In the Name to number one for xmas is a good thing. It's a pretty empty gesture, it smacks more than a bit of musical snobbery, you could just give your money to charity if you want to make a worthwhile point and so on. But let's be honest, they're all rubbish reasons really given the result, aren't they?
Much as I want to be sensible and level-headed about this bizarre 'campaign' I can't get away from the fact that a pretty decent song by a band who are very political (though never been a big fan to be honest) stopped yet another manufactured pop 'sensation' from being number one at xmas. As limited a gesture as it is I can help but feel a little happier because RATM won. I still can't resist the idea that it's a bit of a two fingers, not just to Simon "walking fart cloud of bad taste"* Cowell, but also to rubbish xmas singles generally.
Of course the really sad thing about it is that many of the copies of the RATM track will have been downloaded (let's be realistic!) by middle-aged blokes thinking they are "keeping it real" by preventing teeny pop fans from getting their favourite to the top of the charts at xmas. To which I plead guilty.
* (c) Charlie Brooker
Thursday, 17 December 2009
Punched out
The defeat of Punch Taverns yesterday makes it five remuneration reports that have been voted down in 2009. That makes it a 'record' year (the previous highest total was 4). Will be interesting to see which institutions didn't vote against Punch.
Wednesday, 16 December 2009
This may have dated a little...
Michael Jensen on remuneration (from this):
Market-based compensation provisions are well suited to control the effort and horizon problems, since the market value of the stock reflects the present value of the entire future stream of expected cashflows... Because the expected payoff to stock options increases with stock proce variance, options provide the manager with incentives to invest in projects that increase the riskiness of the firm's cash flows. Options thus help control the managers' incentives to take too little risk. Stock options also help control the underleverage problem. Higher leverage becomes more attractive to the manager since it increases the variance of the equity and thus the value of the options.
Tuesday, 15 December 2009
That Robert Shiller paper...
...that I mentioned previously is well worth a read. Shiller seems to have become a popular economist amongst lefties, presumably because he criticises the efficicent markets hypothesis and presents a behavioural take on markets. That's all well and good.
Therefore I recommend folks on the Left having a look at this paper, even though it's an oldie, because if you take him seriously you should also consider his views on speculation (necessary, and often socially beneficial) and attempts to deal with it. He writes very clearly about the problems in trying to tackle speculation (and indeed indentify exactly who counts as a speculator). These are not the easy questions that are sometimes supposed.
As a side issue it's been interesting going back and reading things like this, the Paul Marsh paper and Margaret Blair from the 1990s. It hammers home the fact that these questions about ownership and long-termism being discussed currently are nothing new, and actually they were discussed in more detail previously. And I don't see many new policy ideas either.
Therefore I recommend folks on the Left having a look at this paper, even though it's an oldie, because if you take him seriously you should also consider his views on speculation (necessary, and often socially beneficial) and attempts to deal with it. He writes very clearly about the problems in trying to tackle speculation (and indeed indentify exactly who counts as a speculator). These are not the easy questions that are sometimes supposed.
As a side issue it's been interesting going back and reading things like this, the Paul Marsh paper and Margaret Blair from the 1990s. It hammers home the fact that these questions about ownership and long-termism being discussed currently are nothing new, and actually they were discussed in more detail previously. And I don't see many new policy ideas either.
Bits & bobs
1. An Independent Commission on Ownership chaired by Will Hutton has been launched. This sounds like it could be right up my street.
2. Dumbest banker quote of the week (on the bonus tax): "We would expect this in Stalinist Russia but not here."
There must be some sort of Godwin's Law equivalent for bankers making this kind comment.
3. Great post from Hopi Sen that has generated some amusing irate comments.
4. It had to happen.
2. Dumbest banker quote of the week (on the bonus tax): "We would expect this in Stalinist Russia but not here."
There must be some sort of Godwin's Law equivalent for bankers making this kind comment.
3. Great post from Hopi Sen that has generated some amusing irate comments.
4. It had to happen.
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