There's a good piece on UK Polling Report about this. There's a clear message - there should be lots of positives next year, but there is also a giant flashing sign stating 'DANGER! COMPLACENCY!".
What is really interesting is to see the halo effect clearly in operation in the way voters view us. Just after the election they generally thought we were bad, and bad at everything. Now we have recovered, not only have have the headline poll ratings improved, but also how we are judged on individual issues. We haven't, in truth, really done much to deserve this. It demonstrates that we shouldn't read too much into there things. I say this because I have felt there is a tendency for some - and to me it appears to mainly Blairite/D Miliband supporters* - to put heavy emphasis on how badly we are seen across the board. Whilst complacency is the major danger, we also need to be aware that when people think you are rubbish, they see signs of your rubbishness in everything.
* And I voted for him remember, so no particular axe to grind.
Friday, 31 December 2010
Unions, mutuals, regulation and libertarians
I'm always a bit surprised by the level of dislike towards trade unions expressed by 'libertarians' (at least in their generally right-of-centre, online form we most often see in the UK). It's surprising because a) unions are surely exactly the sort of voluntary association libertarians ought to like b) unions act as a countervailing force to power in the workplace c) unions have often been at the centre of opposition to political tyranny and d) there's a significant history of libertarianism, and even explicitly anarchism (most famously in Spain), within trade unions.
Many libertarians recognise the validity of some or all of these points, yet still end up viewing unions as part of the problem. One of the most common ways I have seen of reaching this conclusion is to argue that unions were alright in the past when there were real injustices at work, but now they have (to a greater or lesser extent) served their function. So now they are the enemy.
Aside from the question of whether all injustices at work have, or ever can be, addresses at work, it does pose a bit of a problem too, surely? After all, many of the issues that unions pushed on, like shorter working weeks, sick pay and paid holidays to name but a handful, are now 'solved' because certain standards have been put into law. The state, in other words, got rid of the problem. But if we are arguing that unions now don't have a positive role that then is surely to accept that a solution to workplace grievances is better achieved through the state mandating it than by self-organisation. That may or may not be true, but it doesn't sit very easily with a libertarian world view. What next? A crowd-sourced campaign if favour of allowing the state to execute those that threaten it's monopoly on the legitimate use of lethal violence... ;-)
There's an interesting parallel here with the relative benefits of mutuals compared to other forms of business organisation. One argument is that mutuals ought to be less risky than say PLCs because the agency problem is reduced. For example a mutual insurer might be less risky than an insurance PLC. But what happens when you regulate the industry to remove risks - do the potential benefits of the mutual form reduce?
According to Henry Hansmann the answer is yes, and this at least in part explains the decline of mutual insurers. Once again it looks like the value of a self-organised approach declines because of state intervention. The state appears to 'crowd out' the self-organised alternative. Yet I'm finding libertarian enthusiasm for reviving mutuals and similar forms of organisation hard to find.
Of course many libertarians would argue that they recognise the need for regulation, they just want to keep it to the minimum. Similarly they accept that in some cases this means that other forms of resolving issues emerge, hence it's ok that the state does what unions used to try to do. But to me it's notable that many libertarians seem more willing to give ground on their principles when there would otherwise be a challenge to power in the workplace either in terms of the rights of employees or the nature of the organisation of the business. Again, I'm sure there are plenty of good counterpoints, but this in part explains why I (and I am sure many others) see much 'libertarianism' as fairly familiar right-wing stuff, albeit with more swearing and drugs.
Many libertarians recognise the validity of some or all of these points, yet still end up viewing unions as part of the problem. One of the most common ways I have seen of reaching this conclusion is to argue that unions were alright in the past when there were real injustices at work, but now they have (to a greater or lesser extent) served their function. So now they are the enemy.
Aside from the question of whether all injustices at work have, or ever can be, addresses at work, it does pose a bit of a problem too, surely? After all, many of the issues that unions pushed on, like shorter working weeks, sick pay and paid holidays to name but a handful, are now 'solved' because certain standards have been put into law. The state, in other words, got rid of the problem. But if we are arguing that unions now don't have a positive role that then is surely to accept that a solution to workplace grievances is better achieved through the state mandating it than by self-organisation. That may or may not be true, but it doesn't sit very easily with a libertarian world view. What next? A crowd-sourced campaign if favour of allowing the state to execute those that threaten it's monopoly on the legitimate use of lethal violence... ;-)
There's an interesting parallel here with the relative benefits of mutuals compared to other forms of business organisation. One argument is that mutuals ought to be less risky than say PLCs because the agency problem is reduced. For example a mutual insurer might be less risky than an insurance PLC. But what happens when you regulate the industry to remove risks - do the potential benefits of the mutual form reduce?
According to Henry Hansmann the answer is yes, and this at least in part explains the decline of mutual insurers. Once again it looks like the value of a self-organised approach declines because of state intervention. The state appears to 'crowd out' the self-organised alternative. Yet I'm finding libertarian enthusiasm for reviving mutuals and similar forms of organisation hard to find.
Of course many libertarians would argue that they recognise the need for regulation, they just want to keep it to the minimum. Similarly they accept that in some cases this means that other forms of resolving issues emerge, hence it's ok that the state does what unions used to try to do. But to me it's notable that many libertarians seem more willing to give ground on their principles when there would otherwise be a challenge to power in the workplace either in terms of the rights of employees or the nature of the organisation of the business. Again, I'm sure there are plenty of good counterpoints, but this in part explains why I (and I am sure many others) see much 'libertarianism' as fairly familiar right-wing stuff, albeit with more swearing and drugs.
Thursday, 30 December 2010
NEST and limiting choice
One of the minor grumbles I have about my own side is the tendency of some Labour politicians to be sceptical about behavioural economics, albeit seemingly unwittingly. This is usually expressed in terms of swipes at Cameron about 'nudging', and I expect that in many cases these comments are made with out much understanding of what Nudge was all about.
I find it frustrating for two reasons. First because I think it is strategically stupid to allow the Right in the UK to plant their flag on this stuff in policy terms (though I am yet to be convinced that they are using it as more than fluff in placed articles). Second because actually Labour got there first and has introduced a major policy that is significantly influenced by behavourial economics. In the case of the latter point I mean, of course, NEST.
In fact NEST employs two ideas that are rooted in decision-making research. The first, probably better-known, is the auto-enrolment feature. This requires people to opt out if they don't want to save, rather than than opt in if they do. This has been proven to increase scheme membership dramatically, and is based on the idea that people put off difficult/boring decisions and that not starting saving often isn't an active choice (as non-joiners typically say they know they should be saving). Similarly NEST savers will end up in the default fund if they don't actively choose how to allocate their savings.
The second, and to my mind more interesting, feature of note in NEST is the limitation on fund choices. This is based on research suggesting that increasing the options beyond a certain number often results in less choices being made. I'm currently reading Sheena Iyengar's book The Art of Choosing (which is quite good) which covers this stuff in some detail. Iyengar is quite famous for a study involving jam - simple version: customers bought more of it when the options were fewer. This research, and similar studies, led to some financial service providers reviewing what effects increasing the number of fund choices had on decisions to save. Again there was a clear finding - beyond a certain point the more funds you add the few people you get saving. Too much choice.
Therefore NEST is putting into practice some important theories about how we now think choice actually works (including that there can be too much of it some cases). That ought to be of significant interest to Labour and the wider movement and if it works a) we ought to be pretty proud of it and b) we ought to think about where else this kind of thing could be applied. For instance, if we think too much choice is a bad thing in saving for retirement, what about mortgages?
I find it frustrating for two reasons. First because I think it is strategically stupid to allow the Right in the UK to plant their flag on this stuff in policy terms (though I am yet to be convinced that they are using it as more than fluff in placed articles). Second because actually Labour got there first and has introduced a major policy that is significantly influenced by behavourial economics. In the case of the latter point I mean, of course, NEST.
In fact NEST employs two ideas that are rooted in decision-making research. The first, probably better-known, is the auto-enrolment feature. This requires people to opt out if they don't want to save, rather than than opt in if they do. This has been proven to increase scheme membership dramatically, and is based on the idea that people put off difficult/boring decisions and that not starting saving often isn't an active choice (as non-joiners typically say they know they should be saving). Similarly NEST savers will end up in the default fund if they don't actively choose how to allocate their savings.
The second, and to my mind more interesting, feature of note in NEST is the limitation on fund choices. This is based on research suggesting that increasing the options beyond a certain number often results in less choices being made. I'm currently reading Sheena Iyengar's book The Art of Choosing (which is quite good) which covers this stuff in some detail. Iyengar is quite famous for a study involving jam - simple version: customers bought more of it when the options were fewer. This research, and similar studies, led to some financial service providers reviewing what effects increasing the number of fund choices had on decisions to save. Again there was a clear finding - beyond a certain point the more funds you add the few people you get saving. Too much choice.
Therefore NEST is putting into practice some important theories about how we now think choice actually works (including that there can be too much of it some cases). That ought to be of significant interest to Labour and the wider movement and if it works a) we ought to be pretty proud of it and b) we ought to think about where else this kind of thing could be applied. For instance, if we think too much choice is a bad thing in saving for retirement, what about mortgages?
Monday, 27 December 2010
When a relationship gets serious
Friday, 24 December 2010
Obligatory xmas joke
Xmas on the Death Star...
Darth Vader: Skywalker, I know what you're getting for Christmas
Luke: Damn you, Vader, how do you know?
Darth Vader: I have felt your presents
Apologies & I'm taking a brief yuletide blogging break to repent.
Darth Vader: Skywalker, I know what you're getting for Christmas
Luke: Damn you, Vader, how do you know?
Darth Vader: I have felt your presents
Apologies & I'm taking a brief yuletide blogging break to repent.
Thursday, 23 December 2010
Another knock-on effect of Cable-gate
Isn't it going to make it harder for him to do anything interesting with the short-termism review? I share the view expressed by some others that the nature of the review - ie not being carried out by an external 'big name' - meant it was unlikely it would go off-piste anyway. But he might have got away with something interesting, on the basis that many Tories are pretty ignorant about these issues and so may have assumed it was just dull technical stuff (Nu Dave not exactly known for love of detail I believe).
Now that Cable has outed himself as wanting to cause a bit of trouble (and as someone who likes to be highly thought of) the likelihood of sneaking some radical stuff through must be diminished. If I were a Tory concerned about the Cameroons tacking too far left (ho ho) to placate the Libs, I would be watching Cable like a hawk and finding reasons to oppose anything he put forward that looks even slightly radical.
Off course, this is all predicated on the assumption that the review was likely to go anywhere interesting anyway. I do not share the view that Saint Vince is particularly on the Left. Anyone can slag off bankers and their pay - even Gideon does it now and then. And the gap between Vince's 'anti-capitalist' conference speech and the actual questions in the short-termism review was rather significant. Unfortunately some people would rather take the speech rather than the policy proposals as the indicator of where Cable-ism sits on the spectrum.
I still hope that the review does come out with something interesting, and some of the questions it asks are definitely worth asking. But only if you think such reviews rationally weigh the pros and cons before reaching policy proposals, and are never subject any political interference, would you consider that the likelihood of major reform had not reduced.
Now that Cable has outed himself as wanting to cause a bit of trouble (and as someone who likes to be highly thought of) the likelihood of sneaking some radical stuff through must be diminished. If I were a Tory concerned about the Cameroons tacking too far left (ho ho) to placate the Libs, I would be watching Cable like a hawk and finding reasons to oppose anything he put forward that looks even slightly radical.
Off course, this is all predicated on the assumption that the review was likely to go anywhere interesting anyway. I do not share the view that Saint Vince is particularly on the Left. Anyone can slag off bankers and their pay - even Gideon does it now and then. And the gap between Vince's 'anti-capitalist' conference speech and the actual questions in the short-termism review was rather significant. Unfortunately some people would rather take the speech rather than the policy proposals as the indicator of where Cable-ism sits on the spectrum.
I still hope that the review does come out with something interesting, and some of the questions it asks are definitely worth asking. But only if you think such reviews rationally weigh the pros and cons before reaching policy proposals, and are never subject any political interference, would you consider that the likelihood of major reform had not reduced.
Wednesday, 22 December 2010
A different approach to investing?
One of the ideas that has bubbled up as a result of the financial crisis - and the apparent failure of shareholder oversight within it - is to go back to the drawing board in terms of portfolio construction. The argument runs something like this, because institutions have a wide range of equity holdings (in order to diversify risk) there is realistically no way that they can act like an 'owner' of all of them. They also arguably don't really have much of an interest in doing so precisely because they appear to spread their risk, hence they can even just about handle BP tanking because their overall exposure is low. Therefore in a world of widespread portfolios, shareholder oversight is undermined.
So what's emerging instead? Well some argue, and I admit my technical knowledge here is non-existent, that once you get past a certain number of stocks the benefits of diversification (in terms of risk reduction) tail off pretty sharply. Therefore holding several hundred, or even thousand, lines of stock might not do you any good anyway. As as a result I've heard a few people argue recently that a good ownership-oriented portfolio would basically be small in number of holdings, but with big weightings in each stock, and with the plan being to hold for the long term. The institution would make particular efforts to get to know the management and forge decent relationships on the basis of a shared understanding that this was a long-term commitment.
All well and good, but what does that remind you of? To me it looks similar to the private equity governance model, just diluted a bit. Diluted, that is, by the fact that you don't own the company outright, just a sizeable slug of it, and don't have a load of debt focusing your interest. Or to provide a more accurate comparison, isn't this the sort of portfolio an asset manager might have run 15 or 20 years ago?
So what's emerging instead? Well some argue, and I admit my technical knowledge here is non-existent, that once you get past a certain number of stocks the benefits of diversification (in terms of risk reduction) tail off pretty sharply. Therefore holding several hundred, or even thousand, lines of stock might not do you any good anyway. As as a result I've heard a few people argue recently that a good ownership-oriented portfolio would basically be small in number of holdings, but with big weightings in each stock, and with the plan being to hold for the long term. The institution would make particular efforts to get to know the management and forge decent relationships on the basis of a shared understanding that this was a long-term commitment.
All well and good, but what does that remind you of? To me it looks similar to the private equity governance model, just diluted a bit. Diluted, that is, by the fact that you don't own the company outright, just a sizeable slug of it, and don't have a load of debt focusing your interest. Or to provide a more accurate comparison, isn't this the sort of portfolio an asset manager might have run 15 or 20 years ago?
Monday, 20 December 2010
Another reason why we need mandatory voting disclosure
You just can't do this (PDF) kind of analysis in the UK, because too many asset managers either don't disclose their voting record, or disclose votes in an unhelpful format. As usual, much respect to FundVotes which gathers voting data disclosed under the mandatory regime in the US to enable analysis of voting trends to be undertaken.
I personally don't believe you can really take an informed view of how asset managers do stewardship unless you take a look at their voting (so how do investment consultants deal with this?). Whilst it's a fair point that some see voting as a minor element of their engagement, clients (and potential clients) ought to be able to see this, and see how it compares with other potential providers.
At present in the UK the only way of taking an informed view of asset managers is to have a look at the work done by people like the TUC and Fair Pensions (notably both of which push for mandatory disclosure!). If we have a mandatory regime we could have also sorts of interesting reports on different aspects of voting behaviour.
I personally don't believe you can really take an informed view of how asset managers do stewardship unless you take a look at their voting (so how do investment consultants deal with this?). Whilst it's a fair point that some see voting as a minor element of their engagement, clients (and potential clients) ought to be able to see this, and see how it compares with other potential providers.
At present in the UK the only way of taking an informed view of asset managers is to have a look at the work done by people like the TUC and Fair Pensions (notably both of which push for mandatory disclosure!). If we have a mandatory regime we could have also sorts of interesting reports on different aspects of voting behaviour.
Friday, 17 December 2010
London united against government cuts
The government is cutting London services through cuts to our local council budgets.
London Labour MPs, council leaders, Assembly members, our candidate for Mayor Ken Livingstone, and London trade unionists today published a joint statement urging the government to think again about the cost to London of cuts to spending.
The full text of the letter is below:
"Following the Local Government Finance Settlement it's clear London has suffered a raw deal, with its councils facing average cuts of 11.25 per cent. The average for the rest of England is 9.93 per cent.
"So much for Conservative Mayor Boris Johnson's claim to have mounted a 'Stalingrad like defence' of funding for London.
"We must be clear - the size and the speed of these cuts are a choice the Conservative-led government is making. Councils in London are being forced into making the heaviest cuts in the next year because of the decisions taken by George Osborne and Eric Pickles, damaging frontline services and putting jobs and the recovery at risk.
"Our first responsibility is to protect the communities we serve, pressing the government to abandon its course and minimising the pain of the government's cuts for residents. However the scale of the cuts in funding for councils is so big that in many cases this will not be enough to protect many vital services.
"There is little doubt that local government cuts of this size, imposed this quickly and frontloaded in the first year will hit many of the important frontline services families and communities rely on. Roads already damaged last winter could go unrepaired this year too. Potholes could go unfixed, pavements unswept. Streetlights will be turned off. Youth clubs will close. Libraries will shut down. As more people than ever need help with social care, fewer will find their local council able to help.
"Whether from local government, Parliament, City Hall, the trade unions or local Labour parties, London Labour's approach will be based on uniting everyone in London opposed to the way the government has handed these cuts to councils and focusing our campaign where it deserves to be focused - on the government.
"We urge the government to carefully reconsider the serious impact of policies on the quality of life of millions of Londoners, rethink the settlement and give the capital a fair deal."
Yours sincerely
Ken Livingstone, Labour's candidate for Mayor of London
Harriet Harman MP, Deputy Leader of the Labour Party
Tessa Jowell MP, Shadow Minister for the Olympics
Jules Pipe, Mayor of Hackney
Linda Perks, UNISON Regional Secretary
Steve Hart, UNITE Regional Secretary London and Eastern
Paul Hayes, GMB London regional secretary
Richard Ascough, GMB Southern regional secretary
Alan Tate, CWU London Regional Political Secretary
Len Duvall AM, Leader of London Assembly Labour Group
Claude Moraes MEP
Nicky Gavron AM
Val Shawcross AM
Murad Qureshi AM
John Biggs AM
Joanne McCartney AM
Navin Shah AM
Jennette Arnold AM
Diane Abbott MP
Heidi Alexander MP
Rushanara Ali MP
Karen Buck MP
Lyn Brown MP
Jon Cruddas MP
John Cryer MP
Jim Dowd MP
Clive Efford MP
Mike Gapes MP
Meg Hillier MP
Jim Fitzpatrick MP
Margaret Hodge MP
David Lammy MP
Siobhan McDonagh MP
Andy Love MP
Stephen Pound MP
Teresa Pearce MP
Nick Raynsford MP
Joan Ruddock MP
Virendra Sharma MP
Andy Slaughter MP
Stephen Timms MP
Gareth Thomas MP
Emily Thornberry MP
Malcolm Wicks MP
Cllr Liam Smith, Leader of Barking and Dagenham Council
Cllr Ann John, Leader of Brent Council
Cllr Nasim Ali, Leader of Camden Council
Cllr Julian Bell, Leader of Ealing Council
Cllr Doug Taylor, Leader of Enfield Council
Cllr Chris Roberts, Leader of Greenwich Council
Cllr Jagdish Sharma, Leader of Hounslow Council
Cllr Claire Kober, Leader of Haringey Council
Cllr Bill Stephenson, Leader of Harrow Council
Cllr Catherine West, Leader of Islington Council
Cllr Steve Reed, Leader of Lambeth Council
Steve Bullock, Mayor of Lewisham
Cllr Stephen Alambritis, Leader of Merton Council
Robin Wales, Mayor of Newham
Cllr Peter John, Leader of Southwark Council
Cllr Chris Robbins, Leader of Waltham Forest Council
London Labour MPs, council leaders, Assembly members, our candidate for Mayor Ken Livingstone, and London trade unionists today published a joint statement urging the government to think again about the cost to London of cuts to spending.
The full text of the letter is below:
"Following the Local Government Finance Settlement it's clear London has suffered a raw deal, with its councils facing average cuts of 11.25 per cent. The average for the rest of England is 9.93 per cent.
"So much for Conservative Mayor Boris Johnson's claim to have mounted a 'Stalingrad like defence' of funding for London.
"We must be clear - the size and the speed of these cuts are a choice the Conservative-led government is making. Councils in London are being forced into making the heaviest cuts in the next year because of the decisions taken by George Osborne and Eric Pickles, damaging frontline services and putting jobs and the recovery at risk.
"Our first responsibility is to protect the communities we serve, pressing the government to abandon its course and minimising the pain of the government's cuts for residents. However the scale of the cuts in funding for councils is so big that in many cases this will not be enough to protect many vital services.
"There is little doubt that local government cuts of this size, imposed this quickly and frontloaded in the first year will hit many of the important frontline services families and communities rely on. Roads already damaged last winter could go unrepaired this year too. Potholes could go unfixed, pavements unswept. Streetlights will be turned off. Youth clubs will close. Libraries will shut down. As more people than ever need help with social care, fewer will find their local council able to help.
"Whether from local government, Parliament, City Hall, the trade unions or local Labour parties, London Labour's approach will be based on uniting everyone in London opposed to the way the government has handed these cuts to councils and focusing our campaign where it deserves to be focused - on the government.
"We urge the government to carefully reconsider the serious impact of policies on the quality of life of millions of Londoners, rethink the settlement and give the capital a fair deal."
Yours sincerely
Ken Livingstone, Labour's candidate for Mayor of London
Harriet Harman MP, Deputy Leader of the Labour Party
Tessa Jowell MP, Shadow Minister for the Olympics
Jules Pipe, Mayor of Hackney
Linda Perks, UNISON Regional Secretary
Steve Hart, UNITE Regional Secretary London and Eastern
Paul Hayes, GMB London regional secretary
Richard Ascough, GMB Southern regional secretary
Alan Tate, CWU London Regional Political Secretary
Len Duvall AM, Leader of London Assembly Labour Group
Claude Moraes MEP
Nicky Gavron AM
Val Shawcross AM
Murad Qureshi AM
John Biggs AM
Joanne McCartney AM
Navin Shah AM
Jennette Arnold AM
Diane Abbott MP
Heidi Alexander MP
Rushanara Ali MP
Karen Buck MP
Lyn Brown MP
Jon Cruddas MP
John Cryer MP
Jim Dowd MP
Clive Efford MP
Mike Gapes MP
Meg Hillier MP
Jim Fitzpatrick MP
Margaret Hodge MP
David Lammy MP
Siobhan McDonagh MP
Andy Love MP
Stephen Pound MP
Teresa Pearce MP
Nick Raynsford MP
Joan Ruddock MP
Virendra Sharma MP
Andy Slaughter MP
Stephen Timms MP
Gareth Thomas MP
Emily Thornberry MP
Malcolm Wicks MP
Cllr Liam Smith, Leader of Barking and Dagenham Council
Cllr Ann John, Leader of Brent Council
Cllr Nasim Ali, Leader of Camden Council
Cllr Julian Bell, Leader of Ealing Council
Cllr Doug Taylor, Leader of Enfield Council
Cllr Chris Roberts, Leader of Greenwich Council
Cllr Jagdish Sharma, Leader of Hounslow Council
Cllr Claire Kober, Leader of Haringey Council
Cllr Bill Stephenson, Leader of Harrow Council
Cllr Catherine West, Leader of Islington Council
Cllr Steve Reed, Leader of Lambeth Council
Steve Bullock, Mayor of Lewisham
Cllr Stephen Alambritis, Leader of Merton Council
Robin Wales, Mayor of Newham
Cllr Peter John, Leader of Southwark Council
Cllr Chris Robbins, Leader of Waltham Forest Council
Thursday, 16 December 2010
And a bit more on rewards
Just a bit more from the Hidden Costs of Reward. One of the pieces in there from Edward Deci digs a bit further into the different factors that influence the way that rewards affect us. Again this is tied to the idea that incentives/rewards can reduce intrinsic motivation (and performance, creativity...).
He makes the point that the effects depend in part on how we see the reward - is it about controlling/encouraging a certain behaviour, or is it 'informational' (ie a 'well done'). He argues that the latter will have less of a negative impact than the former. Along similar lines, the more salient the contingency of the reward (ie you must hit certain targets to get the bonus) the more potentially damaging. And notably women seem more likely to interpret rewards as controlling rather than informational than men.
Anyhow, once again you get drawn back to the idea that the evolution of performance-related pay in the boardroom tends largely to tick the WRONG boxes when looked at from a psychological perspective. Particularly because of the influence of agency theory, rewards are explicitly designed to direct behaviour (to overcome shirking and/or opportunism). What's more 'reform' of exec pay has focused on more complicated targets - including non-financial ones - which increase the salience of contingency.
One could argue that given that we are presumably dealing with confident individuals they won't read the incentives as controlling/directing, and instead reinterpret them as informational (ie I'm being given this money because I'm uniquely talented). But if that if the case (and I think it maybe in some instances) then incentives only don't do damage because the subjects don't interpret them/respond to them the way they are intended to.
Finally, it does lead you to ponder whether tying rewards to management of non-financials might lead to motivation crowding. Bruno Frey argues that regulation can reduce the desires to do they right thing amongst those that were doing it already, maybe financial incentives for managing ESG issues might do the same.
He makes the point that the effects depend in part on how we see the reward - is it about controlling/encouraging a certain behaviour, or is it 'informational' (ie a 'well done'). He argues that the latter will have less of a negative impact than the former. Along similar lines, the more salient the contingency of the reward (ie you must hit certain targets to get the bonus) the more potentially damaging. And notably women seem more likely to interpret rewards as controlling rather than informational than men.
Anyhow, once again you get drawn back to the idea that the evolution of performance-related pay in the boardroom tends largely to tick the WRONG boxes when looked at from a psychological perspective. Particularly because of the influence of agency theory, rewards are explicitly designed to direct behaviour (to overcome shirking and/or opportunism). What's more 'reform' of exec pay has focused on more complicated targets - including non-financial ones - which increase the salience of contingency.
One could argue that given that we are presumably dealing with confident individuals they won't read the incentives as controlling/directing, and instead reinterpret them as informational (ie I'm being given this money because I'm uniquely talented). But if that if the case (and I think it maybe in some instances) then incentives only don't do damage because the subjects don't interpret them/respond to them the way they are intended to.
Finally, it does lead you to ponder whether tying rewards to management of non-financials might lead to motivation crowding. Bruno Frey argues that regulation can reduce the desires to do they right thing amongst those that were doing it already, maybe financial incentives for managing ESG issues might do the same.
Wednesday, 15 December 2010
Tuesday, 14 December 2010
Fidelity provides post-election Tory cash
A further £25k donated to the Tories in August. Search under donor name 'FIL' here. Will have a look at sponsored MP John Stanley's consulting fees later.
So, does the Institutional Investor Council really exist?
Slightly provocative question I know, but I don't see many signs of the IIC having an existence of its own beyond the Rights Issue Fees Inquiry (RIFI). The IIC has a web address - http://www.iicouncil.org.uk - but it seems to be (to date anyway) purely for the RIFI report. There is no info about the IIC membership, structure or anything like that. Notably the copyright for the RIFI report itself is attributed to the ABI and IMA, rather than the IIC. (PS - note that the AIC is missing from the investor trade bodies on the front of the RIFI report too)
We should have heard something about the IIC by now. According to the blurb on the Institutional Shareholders Committee website here, news of progress should have been out several months ago:
My assumption is that the IIC initiative was principally a response to Lord Myners' criticisms of the ISC. Now Myners is out of government I assume the momentum has gone, and maybe the Coalition has given the nod to the trade bodies that they won't be any trouble. Hence no need to to deliver on a promise to improve investor collaboration at a senior level that only a few saddoes like me will bother to go back and check on. I am genuinely amazed that not a single journalist appears to have asked any questions about who the IIC actually is and what it has done.
Anyway, all this suggests to me that we might not be hearing much about the IIC going forward. If anyone thinks otherwise do let me know.
We should have heard something about the IIC by now. According to the blurb on the Institutional Shareholders Committee website here, news of progress should have been out several months ago:
The ISC will now proceed to formalise a constitution for the new Council, involving the creation of a Nominations Committee to ensure high calibre, representative membership, and the election of a chair. The ISC will report on progress before the end of August.If I am being unfair, and this has been reported somewhere, do let me know. But after a number of web trawls I've been unable to find anything about a constitution or any news of who the IIC is.
My assumption is that the IIC initiative was principally a response to Lord Myners' criticisms of the ISC. Now Myners is out of government I assume the momentum has gone, and maybe the Coalition has given the nod to the trade bodies that they won't be any trouble. Hence no need to to deliver on a promise to improve investor collaboration at a senior level that only a few saddoes like me will bother to go back and check on. I am genuinely amazed that not a single journalist appears to have asked any questions about who the IIC actually is and what it has done.
Anyway, all this suggests to me that we might not be hearing much about the IIC going forward. If anyone thinks otherwise do let me know.
Rights Issue Fees Inquiry
Will blog about this later. Quick question - who is actually in/on the IIC?
Monday, 13 December 2010
Fair Pensions asset manager analysis
Responsible investment campaign group Fair Pensions has released its analysis of the transparency (or otherwise) of asset managers, which is available here and worth a read.
What I like about it, as opposed to say the regular IMA survey, is that it does attempt to rate the quality and depth disclosures, rather than just counting disclosure as good. For example, anyone who has spent any time looking at the issue of voting disclosure will know that simply reporting votes against and abstentions is an inherently flawed model of reporting, as it hugely skews the picture (see the annual TUC survey for the explanation why). The only method of disclosure that is actually any use - to the end user rather than the institution that is - is disclosure of all votes on all resolutions.
Good stuff.
What I like about it, as opposed to say the regular IMA survey, is that it does attempt to rate the quality and depth disclosures, rather than just counting disclosure as good. For example, anyone who has spent any time looking at the issue of voting disclosure will know that simply reporting votes against and abstentions is an inherently flawed model of reporting, as it hugely skews the picture (see the annual TUC survey for the explanation why). The only method of disclosure that is actually any use - to the end user rather than the institution that is - is disclosure of all votes on all resolutions.
Good stuff.
Saturday, 11 December 2010
A bit more on Cadbury
The other interesting thing that Roger Carr mentioned in his LAPFF presentation was the way that the ownership base changed during the course of the Kraft bid. By the end, as I think was fairly well known, hedge funds held something like 30% of Cadbury shares. There are a couple of points to note here. First most these funds piled in during the course of the bid with the aim of making some money quickly from an uplift in the shares. This is what funds like that do, so no big surprise. And they definitely made quick money for their clients as a result. But as I said, according to Carr most of them piled in after the bid had been announced, so they had no great insight into the market, it was a relatively simple bet that the company would get taken out, and as such there was a chance to cash in. Long-term holders may actually have made a lot more money from the deal, though over a longer timescale, obviously.
Secondly, the natural reaction of many (understandably) would be that short-term investors to a large extent determined the fate of the company, and obviously many of the post-bid investors were only looking for a quick return. But how did they get to hold 30%? In reality the hedge funds were only able to build up such a stake because traditional long-only institutions were also cashing in on the rise in the share price resulting from the bid. In a number of cases, according to Carr, they were top-slicing, so were still on the register right till the end, but with a much lower holding. So we should bear in mind, when tempted to stick the boot into hedge funds, that they were only able to have such an influence because traditional institutions allowed them to have it.
None of this is in any way new, nor is the behaviour inconsistent with the mandates given to institutions by their clients (us, and our pension funds). Just a bit of a corrective to the assumption of hedge funds = bad, traditional institutions = good.
Finally, on a separate point, I realise that one of the reasons I found Roger Carr's presentation surprising is that it was a little out of tune with what he had said previously about the deal, see here for example. I think there is a slight element of saying different things to different audiences.
Secondly, the natural reaction of many (understandably) would be that short-term investors to a large extent determined the fate of the company, and obviously many of the post-bid investors were only looking for a quick return. But how did they get to hold 30%? In reality the hedge funds were only able to build up such a stake because traditional long-only institutions were also cashing in on the rise in the share price resulting from the bid. In a number of cases, according to Carr, they were top-slicing, so were still on the register right till the end, but with a much lower holding. So we should bear in mind, when tempted to stick the boot into hedge funds, that they were only able to have such an influence because traditional institutions allowed them to have it.
None of this is in any way new, nor is the behaviour inconsistent with the mandates given to institutions by their clients (us, and our pension funds). Just a bit of a corrective to the assumption of hedge funds = bad, traditional institutions = good.
Finally, on a separate point, I realise that one of the reasons I found Roger Carr's presentation surprising is that it was a little out of tune with what he had said previously about the deal, see here for example. I think there is a slight element of saying different things to different audiences.
Friday, 10 December 2010
A few thoughts on the LAPFF conference
Last week saw the annual LAPFF conference, as usual down in Bournemouth. Mr Gray has already blogged about it here, here and here (and pics here), but I thought I would post up a few of my own thoughts.
1. Sir John Parker from Anglo=American was very interesting, and definitely forward-thinking when it comes to corporate governance. For example, he really can't see what the fuss is about annual elections (which the board has already instated). But as always I found something to pick on! I'm interested in the metaphors people employ in their speech, as I think this tells you something about how they conceive a given situation. I was struck by the fact that Sir John used several turns of phrase that implied a structure whereby the board is at 'the top' and looks 'down'. For example, when discussing safety (and how great to hear a chair say that it is the first item on the agenda at each board meting) he said that the nature of reports given enabled the board to "see right down" to individual sites. I do not dispute that boards give directions that the organisation must follow, and as George Lakoff has demonstrated spatial metaphors are very common. But it did give a clear sense of a top-down view of the company.
2. Ex-Cadbury chair Roger Carr gave a really interesting presentation, but not actually what I expected. He did not say that a great British company had ben lost, and in fact went to some trouble to make clear how un-British it was pre-Kraft. He also didn't really have a pop at hedge funds, effectively suggesting that under the current regime then they didn't do anything wrong. In fact, the general thrust was similar to much of the business page commentary post-deal - Cadbury shareholders got a good deal, and the board held out for as long as possible, eventually surrendering for a good price. He said that if we weren't happy with what had happened then this implied legislative intervention, but he didn't give much indication that he favoured it. This is markedly different from what I was expecting.
3. Paul Myners was great and as usual got a very positive response from the audience (notably including non-Labour councillors there). One of his lines is that trustees should scrap quarterly meetings with their asset managers and instead use the meetings to discuss their investment beliefs, including what to do about stewardship. Funnily enough this message has already got through, as it was apparently mentioned at a trustee meeting our MD was at this week. More generally he was, rightly I think, sceptical about the extent of real reform in the wake of the crisis. Unfortunately the institutional investor community doesn't appear to have got the message. Just one example - what happened to the Institutional Investor Council, the new investor body announced in the summer? We should hear about the fees inquiry this month apparently, but no announcement has been made about the IIC's membership, remit or activities.
As Myners said at the conference, if real change is going to be achieved then it's going to have to come from the asset owners, not the intermediaries. Public sector funds have been the most active in all markets, but a lot more needs to be done. We also need to properly address the DB to DC shift and how stewardship is addressed in this context. Personally I found this year's LAPFF conference a real shot in the arm, but we need to be clear that the reform wave in the political sphere has broken, as evidenced by the capitulation to the banking lobby over pay disclosure. It's up to investors to take the lead now.
1. Sir John Parker from Anglo=American was very interesting, and definitely forward-thinking when it comes to corporate governance. For example, he really can't see what the fuss is about annual elections (which the board has already instated). But as always I found something to pick on! I'm interested in the metaphors people employ in their speech, as I think this tells you something about how they conceive a given situation. I was struck by the fact that Sir John used several turns of phrase that implied a structure whereby the board is at 'the top' and looks 'down'. For example, when discussing safety (and how great to hear a chair say that it is the first item on the agenda at each board meting) he said that the nature of reports given enabled the board to "see right down" to individual sites. I do not dispute that boards give directions that the organisation must follow, and as George Lakoff has demonstrated spatial metaphors are very common. But it did give a clear sense of a top-down view of the company.
2. Ex-Cadbury chair Roger Carr gave a really interesting presentation, but not actually what I expected. He did not say that a great British company had ben lost, and in fact went to some trouble to make clear how un-British it was pre-Kraft. He also didn't really have a pop at hedge funds, effectively suggesting that under the current regime then they didn't do anything wrong. In fact, the general thrust was similar to much of the business page commentary post-deal - Cadbury shareholders got a good deal, and the board held out for as long as possible, eventually surrendering for a good price. He said that if we weren't happy with what had happened then this implied legislative intervention, but he didn't give much indication that he favoured it. This is markedly different from what I was expecting.
3. Paul Myners was great and as usual got a very positive response from the audience (notably including non-Labour councillors there). One of his lines is that trustees should scrap quarterly meetings with their asset managers and instead use the meetings to discuss their investment beliefs, including what to do about stewardship. Funnily enough this message has already got through, as it was apparently mentioned at a trustee meeting our MD was at this week. More generally he was, rightly I think, sceptical about the extent of real reform in the wake of the crisis. Unfortunately the institutional investor community doesn't appear to have got the message. Just one example - what happened to the Institutional Investor Council, the new investor body announced in the summer? We should hear about the fees inquiry this month apparently, but no announcement has been made about the IIC's membership, remit or activities.
As Myners said at the conference, if real change is going to be achieved then it's going to have to come from the asset owners, not the intermediaries. Public sector funds have been the most active in all markets, but a lot more needs to be done. We also need to properly address the DB to DC shift and how stewardship is addressed in this context. Personally I found this year's LAPFF conference a real shot in the arm, but we need to be clear that the reform wave in the political sphere has broken, as evidenced by the capitulation to the banking lobby over pay disclosure. It's up to investors to take the lead now.
Thursday, 9 December 2010
Say goodbye to saying goodbye to broken promises
Now here's a surprise, if you try to play the clip here it no longer works.
UPDATE: Now it does! Enjoy, especially the very first 'broken promise' you see!
UPDATE: Now it does! Enjoy, especially the very first 'broken promise' you see!
Wednesday, 8 December 2010
Libs, how low can you go?
Category error?
I like this headline from Professional Pensions:
Shift from RPI to CPI spells £76.6bn bonanza for schemesWell yeah, but can 'schemes' (pension funds) actually enjoy a bonanza? The reality is revealed in the first sentence of the story:
The government has calculated the move from RPI to CPI indexation for occupational schemes could reduce the value of pension rights by as much as £76.6bn over 15 years.What we're actually talking about this is the value of something (pensions) being reduced, or if you want to be more company-friendly (as most financial media tends to be...) pension costs are being reduced. But it's a bit of a stretch to turn this into a 'bonanza' for institutions whose purpose is to provide/administer the benefits that are being reduced.
Sunday, 5 December 2010
A few more bits on motivation
I'm trying to read a bit further around the area of incentives and how they affect behaviour, so I picked up an old copy of The Hidden Costs of Reward, which was an early compilation of research on the subject. (Once again this has rocketed up in price on Amazon since I got my copy).
There is a stack of interesting stuff in here, including some useful theoretical pieces. But as usual I find myself drawn to some of the experimental findings which include -
Incentives inhibit incidental learning - ie they focus you more on the specific task to the exclusion of other information. Clearly this can be a good thing.
On a related point, they lead people to focus on both on the easiest solution (again this is obviously usually, but not always, good) to a given task, and to choose easier tasks.
Again related, they seem to inhibit creativity in problem solving.
Incentives can be effective at improving performance on 'algorithmic' tasks, but not 'heuristic' ones.
All of this, to me, points in the direction that financial incentives might have a positive effect on performance on the shopfloor, though even this probably needs hedging. But there seems to be a theoretical and empirical black hole if we are seeking to justify their use in the boardroom. Despite this, since the financial crisis hit, all the work on remuneration 'reform' seems to have focused on performance measurement issues. Surely this is a major missed opportunity?
There is a stack of interesting stuff in here, including some useful theoretical pieces. But as usual I find myself drawn to some of the experimental findings which include -
Incentives inhibit incidental learning - ie they focus you more on the specific task to the exclusion of other information. Clearly this can be a good thing.
On a related point, they lead people to focus on both on the easiest solution (again this is obviously usually, but not always, good) to a given task, and to choose easier tasks.
Again related, they seem to inhibit creativity in problem solving.
Incentives can be effective at improving performance on 'algorithmic' tasks, but not 'heuristic' ones.
All of this, to me, points in the direction that financial incentives might have a positive effect on performance on the shopfloor, though even this probably needs hedging. But there seems to be a theoretical and empirical black hole if we are seeking to justify their use in the boardroom. Despite this, since the financial crisis hit, all the work on remuneration 'reform' seems to have focused on performance measurement issues. Surely this is a major missed opportunity?
Saturday, 4 December 2010
The Market Experience
I've just finished reading The Market Experience, which I highly recommend to anyone with a month or two of reading time to spare (if you're as slow as me!). Imagine every half-idea you have had about how markets affect individuals - for example whether they make them more selfish, materialistic etc - Lane went and dug out whatever evidence he could find. As a result I found myself repeatedly challenged to re-examine some of my assumptions about markets.
The book is, or should be, challenging to both Left and Right. Lane explores a lot of psychological research, and argues that (above a certain level of income) increases in wealth don't make much difference to happiness, or satisfaction with life. Other things can have a much bigger affect on us. This is challenging for the Left, because it means - if the goal is to increase happiness - a focus on greater economic equality doesn't make a lot of sense (though there are political arguments for this).
Lane provides a really good overview of how experience in the market helps us develop. The ability to make choices and see responses to our actions is important in developing a sense of self-direction. Obviously this development could occur under different systems, but at least on these grounds the market can be seen to at least facilitate development rather than inhibit it.
He also takes issue with the idea that work is something we wouldn't normally undertake were it not for the money we receive in return. In fact many of us derive a great deal of satisfaction from work, especially when we are self-directed and believe we are advancing. Notably he also reviews the literature on the negative impact of rewards and concludes that it is a widespread, if minor, issue. In part contingent rewards are damaging because they frequently undermine the sense of self-direction.
The upshot of the study is that Lane argues that there should be a reorientation away from a consumer economy to a producer economy. This is based on the belief that we achieve more through work than through consumption.
All in all it is a great book, and it has led me off in lots of other directions. It came out in 1990, so much has changed since and there may well be areas where the book might be challenged. But overall it's a fantastic resource for understanding markets and how they affect people.
The book is, or should be, challenging to both Left and Right. Lane explores a lot of psychological research, and argues that (above a certain level of income) increases in wealth don't make much difference to happiness, or satisfaction with life. Other things can have a much bigger affect on us. This is challenging for the Left, because it means - if the goal is to increase happiness - a focus on greater economic equality doesn't make a lot of sense (though there are political arguments for this).
Lane provides a really good overview of how experience in the market helps us develop. The ability to make choices and see responses to our actions is important in developing a sense of self-direction. Obviously this development could occur under different systems, but at least on these grounds the market can be seen to at least facilitate development rather than inhibit it.
He also takes issue with the idea that work is something we wouldn't normally undertake were it not for the money we receive in return. In fact many of us derive a great deal of satisfaction from work, especially when we are self-directed and believe we are advancing. Notably he also reviews the literature on the negative impact of rewards and concludes that it is a widespread, if minor, issue. In part contingent rewards are damaging because they frequently undermine the sense of self-direction.
The upshot of the study is that Lane argues that there should be a reorientation away from a consumer economy to a producer economy. This is based on the belief that we achieve more through work than through consumption.
All in all it is a great book, and it has led me off in lots of other directions. It came out in 1990, so much has changed since and there may well be areas where the book might be challenged. But overall it's a fantastic resource for understanding markets and how they affect people.
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