Wednesday, 30 June 2010

Stewardship Code...

It should be appearing sometime soon, and there are few things worth looking out for.

Coverage - first up, what do we mean by 'institutional investors'? Just the asset managers or their clients (pension funds mainly) too? I suspect that some people are worried that if it only applies to managers then things may continue as before, because the clients won't put any pressure on. Secondly, what about companies that advise investors on ownership issues - the voting advisers. Personally I see no good reasons why they ( we) shouldn't be subject to the Code given the influence exerted.

Monitoring/enforcement - this is the biggie IMO. Who is going to monitor the application of 'comply and explain' when it comes to the Code? With the Corp Gov Code monitoring is carried out by the market, in the shape of shareholders and their advisers. But who will do the job in this case? Maybe investment consultants? But is there much dosh in it? The FRC talked about adopting the IMA engagement survey, but that doesn't quite fit the bill. Personally I think there isn't a better alternative than the FRC doing it themselves, but I suspect they lack the resource.

Pooled funds - I know several submissions to the consultation raised the issue of client voting in pooled funds. Any kind of statement here from the FRC would be hugely helpful to nudge managers in the right direction.

Voting disclosure - my hobbyhorse obviously, but I find it hard to see how anyone reasonable could conclude that the current 'comply or explain' system is working (because the vast majority of those who don't comply don't explain). So it will be interesting to see if the wording in the Code has been toughened up. I have no expectation that it will have been, but worth looking out for.

Monday, 28 June 2010

Old, but interesting

This paper (PDF), which puts forward stewardship theory as an alternative to agency theory. Interestingly the paper effectively argues that the roles of chair and chief exec should be combined, and that the research in the paper suggests that splitting them has no value and may have a cost. I'm more convinced by the (brief) critique of agency theory, rather than the propositions that flow through it. But worth a read.

BoJo World Cup analysis

Of course! It was PC and Elf and Safety wot lost it:
We are still paying the price of an educational establishment that developed an aversion to competitive games and an obsession with bureaucracy and elf and safety that made it hard for the voluntary sector to fill the gap.


Can I be the first to point out the correlation between the election of a Conservative prime minister and a truly dismal England World Cup campaign? Those who don't learn from history and all that...

On a more serious note, Shuggy's post on the Lib Dems is worth a gander. Read in conjunction with the latest stats on UK polling report. Support for the Yellow Tories has halved since the peak of Cleggmania. Clearly that was a false dawn but they are still a long way down on the 23% they achieved at the election.

Friday, 25 June 2010

Errr... no

There's some wobbly thinking in this here comment piece on pensions in the Telegraph
Longer lifespans mean we must save more and work longer or retire in poverty. You can opt out of saving but you cannot opt out of growing old. But that does not mean the Government should nationalise our savings, which is what its new auto-enrolled scheme amounts to.

I think the phrase "amounts to" is being used here in the less common sense of "is not at all like". I think a reasonable interpretation of 'nationalisation' would be that the assets are taken into public ownership. Yet that clearly isn't happening under auto-enrolment. Either you are auto-enroled into your employer's scheme, so the assets remain in the trust in a DB scheme or in your own account in a DC a scheme, or you go into Personal Accounts, where you have your own fund. There is absolutely no question at all that the state takes ownership of your assets. (indeed one argument for having a funded national scheme is that politician's can't muck about with it so easily).

What's more the state isn't even going to invest those assets, that will be done by the scheme's asset managers, and scheme members will have a (limited) choice in how to spread their assets around. Theoretically I spose the govt could have, say, expanded UKFI's remit and given it the job of investing the assets of the scheme, but it has not done so.

To be clear: there is no basis whatsoever for saying this scheme amounts to nationalisation of savings.
A Conservative solution to the problem of inadequate saving would be to improve incentives for voluntary pension contributions.
Assuming this is a Conservative who does not accept the arguments in Nudge which advocates auto-enrolment if I remember rightly. (and as I've blogged bwefore, Thaler's research was quoted to back up the introduction of Personal Accounts).
That need not involve extra costs in the form of tax breaks. For example, the Budget proposals to give savers greater choice about how they spend pensions savings, by removing the compulsion to buy a guaranteed income for life in the form of annuitiies, will make pensions more flexible and attractive. Savers do not like being told what to do with their own money.
Once again, I would have thought that anyone who has read much research abour decision-making in relation to saving would reach very different conclusions. Many people find the decision about whether and how much to save too difficult, and put it off, and would rather be guided. Flexibility is only attractive to some.
Pensions would be even more attractive if we knew we could get access to the money earlier in life when we needed it; perhaps to fund a business or buy a home. This flexibility already exists in America and there is no reason it could not be introduced here.
The first bit here merits re-reading because it is a bit contradictory. In essence the argument is that pensions would be more attractive if they weren't pensions. Or to put it another way, we would save more for retirement if we didn't have to use the money we have saved for retirement for our retirement.

Now I'm not actually opposed to flexibility in relation to savings, and there is room to innovate here. But I'm not convinced that opening up retirement savings for other uses is going to be a good way of helping people fund for retirement in the long run. Over time won't people start seeing their pension as just a savings account that they can dip into? And won't we tend to overestimate our need for the money now rather than in the future?

This is a more complex argument than flexibility = good.

Thursday, 24 June 2010

The first big porkie from Cameron?

Accrued pension rights for public sector workers won't be touched he claimed. But what about this, eh?

Looks to both pre-empt the public sector pension commission and affect accrued rights (since scheme member won't get the indexation that they thought they had been promised).

Tuesday, 22 June 2010

A regulatory turn?

I thought I'd try and pull together a few bits and pieces that I've briefly blogged about already that I think point to a potential shift in governance, perhaps towards a more regulated approach. First, up let's return to what Stephen Haddrill of the FRC said last week about the potential for investors to be stripped of their rights. Here's a slightly longer excerpt from his speech:
In the wake of the crisis, Governments and the public at large expect [the] responsible, benign and moderating influence [of shareholders] to be maintained and intensified. Market pressures may point in the other direction; fund managers may argue that they have no mandate for engagement; pension funds may argue their members’ money should only be spent on stock picking skills; traders may see only the vital need to enhance the technology to push ownership periods below ten seconds. All are points with some validity. But if shareholders do not lift their eyes and see thatas a result of such views stewardship is weakening and needs to be strengthened, then Governments will conclude that governance must become based on law – and that is not good news for shareholders investing in companies that need flexibility to win in global markets – and the public will conclude that shareholders do not deserve their rights. That the deal is off.
As I posted previously, I think this is absolutely right and I don't think that UK institutions have really taken the point onboard as yet.

This is odd, as the warning signs are already there. I mentioned Paul Myners latest speech yesterday. Here's something he said early on that is worth flagging:
The European Commission’s Green Paper last month on corporate governance of financial institutions, an important document which raises a series of challenging questions and presages a report and proposals which are likely to shape governance thinking and practice across Europe, points to doubts about corporate governance processes based on the presumption of effective control by shareholders of listed companies. The EU Commission intends, inter alia, to review methods for strengthening shareholder co-operation, monitoring adherence to stewardship codes, addressing conflicts of interest and disclosure by end investors of the remuneration of the intermediaries. Over the last 12 months many in the UK have been wrestling with the EU Commission’s proposed Directive on hedge funds and private equity, a Directive which starts from a basic scepticism about market efficiency and agent accountability. The EU Commission’s Green Paper on Governance uses words more subtle than the original hedge fund Directive but the underlying message is very similar. The Commission is not convinced that the existing model is working and is inclined towards the need for more regulation, extended duties of care and wider stakeholder accountabilities for directors and corporate officers and a role for supervisors “to check the correct functioning and effectiveness of the board”. We have been placed on notice!
Again, very true. The EC paper (PDF) is not an explicit attack on the shareholder-focused model of governance, but there are plenty of digs, like this:
The financial crisis has shown that confidence in the model of the shareholder-owner who contributes to the company's long-term viability has been severely shaken, to say the least.
The Commission is aware that this problem does not affect only financial institutions. More generally, it raises questions about the effectiveness of corporate governance rules based on the presumption of effective control by shareholders.
And this:
The Commission is also considering whether, in addition to shareholders' interests, which are essential in the traditional view of corporate governance, financial institutions also need to take better account of other stakeholders' interests.
That seems to suggest a policy shift away from a shareholder-focused model, doesn't it? And let's be honest, in political terms the UK probably isn't in the strongest position to argue in Europe that its model of public company governance is superior. As such there may will be quite a receptive audience for the Green Paper's message.

And just to finish joining the dots of this particular picture, let's have a look at what our own financial regulator in chief has to say about in whose interests the directors of companies should work. Shareholders? Err... not exactly...
I would strongly advocate intervention in the UK through changing the Companies Act framework for directors, for example. The current requirement for directors is to promote the success of the company. This is often interpreted in terms of shareholder value. Whilst this does include the need, for example, to ‘have regard to’ the impact on the community, I do not believe that is sufficient. There must be a stronger and more explicit obligation to wider society. There must be clear recognition of the need for institutions to contribute to the common good.
Once again, it's a signal of a turn away from the shareholder-as-owner model isn't it? And if directors have a wider duty to consider other stakeholders (the 'common good' would need to be narrowed down a bit) surely some people are going to start asking why only shareholders are granted legal rights to hold boards accountable in respect of those duties.

What this emerging picture means will depend on your viewpoint on company ownership generally. As a pro-market lefty I'm inclined to want to try and make progress with the initiatives we have underway like the Stewardship Code etc. I still think there are opportunities for the Left to play a bigger role here. And if we were really going to turn away from our existing model, I'd be more interested in issues like employee representation in governance rather than simply shifting to more regulation. Nonetheless the potential turn away from a market approach could be very significant, and I'm surprised that the warning signs haven't attracted more attention as yet.

Finally the silence of the Tories (both blue and yellow varieties) on these issues is surprising. It's indicative of a general lack of attention paid to governance I guess, and maybe there's also a desire not to legitimise any of Labour's work in this field. But oddly it means that the effect could again be to make it more likely that regulators gain power relative to owners in the ConDem Nation.

Monday, 21 June 2010

Fidelity's pre-election donation

Just to note that Fidelity gave the Tories a further £150K in February this year. Search under 'FIL Investment' in the donor name field on the electoral commission register. According to the commission's records, Fidelity has given the Tories about £825,000 since 2004. That doesn't include payments to Tory MP John Stanley who has done 4 or so days' worth (38 hours) of consulting for Fidelity between November and April.

Another Myners speech...

Paul Myners is still giving speeches that are well worth a read for anyone interested in the sorts of issues I cover on this blog. Last week he spoke at the Yale School of Management governance conference. There's a report in Financial News here (but you may need a sub).

Lots of stuff in there about investor stewardship and I have the full speech if anyone wants it (email me). Here's what he had to say about exec pay:
1. First, it is striking that there is almost no evidence to support the view that paying senior executives ever higher multiples of average earnings produces superior outcomes,
2. Second, there is no logical economic explanation for the fact that senior executive remuneration has become so detached from the rewards of others – I am aware of no fundamental change in the demand for leadership and execution or the supply of talent,
3. Three, we appear to have allowed senior executive reward to have been driven almost solely by reference to external comparators. This may suit those who benefit and those who own the data but it is culturally dangerous to disregard internal comparators and the case for perceived fairness in promoting the cause of the corporation and the interests of owners,
4. Finally, are we right to believe that giving senior executives an ever increasing proportion of their compensation in equity aligns interest and represents value for money? On the former, put simply, how much is enough to achieve enough alignment? Where is the evidence that confirms recent trends and assumed behavioural benefits? On the latter, surely we have gone beyond the point where for the executive the marginal utility or value of yet another share in the corporation is less than the market value of that share because of the lower value that the executive would place on the last share awarded in what will already be a very poorly diversified portfolio from the executive’s perspective.
Again, to put it simply, are companies awarding compensation which has a cost to the corporation of one dollar but a value for the recipient of much less? Perhaps more use should be made of deeply subordinated or even zero coupon debt?

Friday, 18 June 2010

Interesting comments from the FRC chief exec

Get a load of this:
“Without a critical mass of engaged investors, boards are not held to account, and the call for regulators to take more direct action is hard to resist - with all the implications that has for a loss of flexibility in the way companies are run.

“If shareholders do not lift their eyes and see that as a result of such views stewardship is weakening and needs to be strengthened, then Governments will conclude that governance must become based on law – and that is not good news for shareholders investing in companies that need flexibility to win in global markets – and the public will conclude that shareholders do not deserve their rights.

“So to those who have shareholder rights, I say use them or lose them. And to those who can get engaged, I say now is the time to start”.

I obviously agree, as I've been banging this particular drum for some time:
in public policy generally in this area, a return to pre-crisis behaviour by institutional shareholders could do a lot of damage. As I've banged on regularly in the past, if the owners - for whatever reason - repeatedly show no inclination to act like economic theory would suggest they ought, then people will question a shareholder-focused governance regime. If companies and their investors wish to avoid a situation where there is a greater statutory element to governance they need to recognise this.

Thursday, 17 June 2010

Here come the cuts

And this is just the warm up act.


Stonehenge Visitor Centre: £25m
Local Authority Leader Boards: £16m
Sheffield Forgemasters International Limited: £80m
Rollout of the Future Jobs Fund: £290m
Six month offer recruitment subsidies: £30m
Extension of Young Person's Guarantee to 2011/12: £450m
Two year Jobseeker's Guarantee: £515m
Active Challenge Routes - Walk England: £2m
Dept of Health funding for County Sports Partnerships: £6m
North Tees and Hartlepool hospital: £450m
Local Authority Business Growth Initiative: £50m
Outukumpu: £13m

Tuesday, 15 June 2010

How journalism works

Iain Dale reposts a diary piece from the Indie in 2006, the Mail nicks it and runs it as a shock revelation. Truly pisspoor.

Update: and Guido in turn spins pisspoor journalism as Labour in-fighting. Surely more likely that a hack on a right-wing paper nicked a story from a widely-read right-wing blog, no?

Directors' pensions disclosure

From the Pink 'Un:
The UK’s biggest investors are demanding more transparency from companies over the pension perks awarded to top executives.

The National Association of Pension Funds and the Local Authority Pension Fund Forum, whose members hold £800bn and £85bn of assets respectively, have written to the chairmen of each company in the FTSE 350 warning that continued lack of transparency and overgenerous terms risk rewarding top executives for failure.

Pensions have become a bone of contention between shareholders and boards in recent years, hitting a high point in 2009 when it emerged that Sir Fred Goodwin, ex-chief executive of stricken Royal Bank of Scotland, had been awarded a pension of £703,000 a year when he left the bank.

This prompted an outcry, with shareholders demanding from companies tighter service contracts, additional disclosure and a cut in notice periods to a year.

Retirement benefits are rarely tied to performance, unlike other elements of directors’ pay, share options, bonuses and long-term incentive plans.

The NAPFF and LAPFF pointed out that top executives are also awarded pensions on significantly more generous terms than the rest of a company’s workforce. Benefits accrue faster, companies frequently contribute more and an increasing number offer cash payments instead of contributing to a pension. Retirement ages are set lower and plans sometimes include special early retirement provisions.

The NAPF and LAPFF said on Monay that “firms should make it clear that an unreduced pension on early retirement is usually inappropriate”.

The letter does not call for directors’ pensions to be cut, but argues more clarity is needed so shareholders can judge awards properly.

Joanne Segars, NAPF chief executive, said: “There should be no reward for failure and pensions must be scrutinised as a key part of the overall pay package. Pensions are not usually linked to performance and so must not become a back door to increasing directors’ pay.

“Where boardroom pensions are more generous than those on the shop floor, investors may have questions about fairness that need to be answered.

“Shareholders need to see what’s going on under the bonnet if they’re to hold management to account. We hope that companies heed our call for greater transparency.”

Ian Greenwood, chairman of the LAPFF, said: “The most important thing is transparency. At present it sometimes isn’t possible for investors to take an informed view on directors’ pensions arrangements because of the lack of clarity in some remuneration reports.”

Monday, 14 June 2010

Musical interlude

I'm not a big Hybrid fan. In fact I think a lot of what they do is like a 21st century 'Hooked on Classics'. But every now and then they hit the target, and I'm finding it very hard not to like THIS a lot. Obviously a sci-fi soundtrack looking for a film, but hey.

Another interesting oil company AGM

Again I've done some heavy duty investigative journalism. I looked through a list of recent AGMs, picked one - JKX Oil - at random and Googled "JKX Oil AGM result rns". Phew!

Anyhow, the AGM statement is here. What's interesting at this one? Well, look down the column of total votes cast, and look at resolutions 9 & 13. The turnout increases by 50%, and if you look at the oppose votes you can see that without the increased turnout the company would have (narrowly) lost both votes.

The resolutions were seeking authority to issues shares so could be mainstream investors opposing them, but how do we explain the massively increased turnout? Might be worth a dig around.

UPDATE: thanks to AM for the following: "JKX actually lost the vote on res. 13 as it was a special resolution – the obvious suspect is the large Ukrainian shareholder (under the name of Ralkon) that presumably did not want to be diluted anymore."

Thursday, 10 June 2010

Interesting exec pay vote

Get a load of this at Afren. On a straightforward votes for and against split the remuneration report barely scraped through, but look at the number of abstentions. Include them and the vote actively in favour is just 40%. There's a similar story with the vote on the election of non-exec John St John. Votes against and abstains add up to about 46%.

It does make me wonder a bit why investors abstain on some of these things, pay votes especially. I understand the argument that it allows you to gradiate your approach, but what should shareholders conclude the actual result is in Afren's case? Legally they won the vote, but 60% of shares didn't support the company policy. I would always argue that faced with a vote of this magnitude the board ought to speak to those shareholders who opposed it. But when there's a big number of abstentions like this (which I'm guessing it may be driven by a RiskMetrics recommendation) essentially the company has been given a message that is simultaneously very loud (voting level) and unclear (voting decisions). If those abstains had been added to either side the message would be much simpler to interpret. Ho hum.

Also a quick moan about journos - I'm surprised at how many votes like this slip past the financial and other specialist media without comment. If you were on an energy mag or similar surely you'd be tracking the AGMs of all the PLCs in that sector? And why doesn't someone on the FT or WSJ have the job of checking RNS announcements for AGM results? All I did to find this result was Google the "Afren AGM result RNS". Not difficult.

Wednesday, 9 June 2010

Rant alert! Fund managers vs unions

A few years ago, when I was still working at Congress House, I had a lunch (not an expensive one I should add) with a fund manager. I actually quite enjoyed talking with someone with a very different perspective on some of the things that I bang on about. But one topic of conversation really grated, and it has stuck with me to this day - BA.

What irritated me was the fund manager's assertion that BA was overmanned and its staff overpaid. It's an assertion that gets repeated by asset managers in a lot of the coverage of the current strike. Now I don't pretent to know the ins and outs of the airline industry, or how BA compares to other airlines. But I am sure that BA staff deliver a real, tangible service. The contrast with fund management could not be more obvious. Good, I'm glad you agree. But let's to be clear on a few specifics.

If you remove BA staff, the airline will not operate, the planes won't fly and no-one will serve you a delicious (sick) in-flight meal. In fund management, you could just use a computer programme and get broadly the same result, this is after all the index-tracking business in a nutshell. Secondly, the service that BA customers receive is provided by the BA staff. The pilots fly you, the ground crew make sure the plane can fly, the cabin crew look after you during the flight. In fund management the service - the returns - is ultimately provided by someone else, the people working in the companies whose shares you hold via the manager.

It never ceases to amaze me how people seem to have this implicit view that fund managers generate returns. Actually what they do is select coupons (they don't invest money 'in' companies), and week in week out many of them are paid very highly for doing this worse than a computer programme could.

This shouldn't surprise us either. Effectively employing fund managers is like paying someone to go on Deal Or No Deal and choose the boxes for you. The future is as unknowable as the contents of Noel's boxes, and the historic results of active asset managers demonstrate this rather well. Pension funds and other asset owners might - as Paul Woolley suggests - be better off doing it all themselves, as they used to for much lower costs.

I'm sure a lot of people won't sympathise with the BA strikers, I do. But at least next time you read some fund manager telling you that BA needs to cut its costs remember that part of your pension is being needlessly shovelled their wallet. People need airlines to undertake air travel, professional fund management on the other hand is arguably an entirely unnecessary industry.

Monday, 7 June 2010


from Fear of Freedom:
The thought that is the result of active thinking is always new and original; original, not necessarily in the sense that others have not thought it before, but always in the sense that the person who thinks, has used thinking as a tool to discover something new in the world outside or inside himself. Rationalisations are essentially lacking in this quality of discovering and uncovering; they only confirm the emotional prejudice existing in oneself. Rationalising is not a tool for penetration of reality but a post-factum attempt to harmonise one’s own wishes with existing reality.

More stuff to read

The EC Green Paper on corp gov is available here. There is a very interesting feel to this consultation, one that won't be unfamiliar to readers of this here blog. There are more than a few digs at the 'shareholder-as-owner' approach to governance. They are more restrained than you might expect, or maybe it's because that line of argument has become mainstream and the critique reads differently in that context, but there's definitely summink there.

And, completely seperately, there's a great interview with Paul Woolley on Responsible Investor.

Some good bits in FTFM

You may need a sub to get these but there is an interview with Colin Melvin at Hermes that's pretty much all about shareholder engagement. The bit that caught my eye was this:
Some commentators say the differentials between top and average pay have been allowed to grow too much in the UK too. Mr Melvin maintains that allowing pay to be driven too high comes back to shareholders failing to hold company management properly to account.

“Shareholders were given formal oversight in the UK some years ago by the addition of a vote on the remuneration report. I guess that has not been used properly, and that’s part of the reason we are where we are.”
I agree entirely. But how many institutions are even considering whether levels of pay are reasonable, rather than whether there is some kind of alignment with shareholder interests and/or notional link with performance? Not many, I would suggest. So why would there be any need for companies to think about differentials? (This doesn't preclude the possibility that some companies might want to consider this issue).

Also no-one is really digging into how the shareholder vote on remuneration gets used. As I've argued many times, there are wide variations in investors' use of voting rights even on pay yet there is - currently - no pressure on the worst offenders.

Anyway, also worth a quick skim is Seamus Gillen's piece here.

Thursday, 3 June 2010

Another John Kay snippet

From Obliquity
A good oil company is good at being an oil company, just as a a good university is good at being a university, a good harpist is good at playing the harp and a good dentist is good at filling teeth. There is no defining purpose of these activities distinct from the activities themselves. Those who direct businesses must try to balance a multiplicity of objectives and meet many and incompatible demands that individuals and other organisations make on them...

...The people who sought to infer some overall design from the noisy bustle of day-to-day decision making in business were imposing order on confusion, directness on obliquity...

Businesses do not maximise anything. The most successful business leaders like Marks or Walton or Gates pursued the unquantifiable, but entirely meaningful, objective of building a great business. A great business is very good at doing the things we expect a business to do - rewarding its investors, providing satisfying employment, offering goods and services of good quality at reasonable prices, fulfilling a role in the community - and to fail in any of these is, in the long run, to fail in all of them.

To say, as some people do, that doing all these things is really maximising profit is as confused as the claim that Beckham was really solving some set of complex differential equations [when he scored that free kick]. Indeed to say that successful business people are really maximising profit is doubly wrong. I know that Beckham scored. I have no idea whether or not Simon Marks maximised profit, and nor did he.

Pay and behaviour

I'm hugely grateful to a mate at an asset manager for bringing this paper (PDF) to my attention. It demonstrates that (as I had hoped) some investors are starting to think more deeply about what actual effects performance-related pay has in the boardroom. Basically the paper is a summary of loads of other academic papers that have appeared over the past three years, so lots of further reading...!

Another idea I've been kicking about is the way that cognitive/behavioural biases might affect the way that those making governance-related decisions on the investor side of the company-shareholder relationship. And wouldn't you know that somebody has already got there? This paper sounds really interesting:
Westphal & Bednar (2008) apply the idea of behavioural traits when examining how executives use certain patterns of behaviour to influence powerful institutional investors. The authors focus on how persuasion and ingratiation are used to prevent changes in corporate governance and strategy.
Sounds good dunnit?

Wednesday, 2 June 2010

Pru deal fails

Interesting times. Shareholders oppose overpriced takeover shocker. Complicated by US politics obviously, but still quite a significant development I reckon. The Pru chief exec is surely going to get booted over this, but what about other board members?

Tuesday, 1 June 2010

That Protestant work ethic

From the other book I currently have on the go:
What was new in modern society was that men came to be driven to work not so much by external pressure but by an internal compulsion, which made them work as only a very strict master could have made people do in other societies.

The inner compulsion was much more effective in harnessing all energies to work than any outer compulsion can ever be. Against external compulsion there is always a certain amount of rebelliousness which hampers the effectiveness of work or makes people unfit for any differentiated task requiring intelligence, initiative and responsibility. The compulsion to work by which man was tuned into his own slave driver did not hamper these qualities. Undoubtedly capitalism could not have been developed had not the greatest part of man’s energy been channelled in the direction of work. There is no other period in history in which free men have given their energy so completely for one purpose: work. The drive for relentless work was one of the fundamental productive forces, no less important for the development of our industrial system than steam and electricity.