Saturday, 29 October 2011

High pay saboteurs

A hunt saboteur once told me a story a fellow sab had told them about how their approach to a hunt changed over time. When this sab first went out, he looked out for for the mounted field. He soon realised that they essentially just follow the actual business along, so he began to look for where the hounds were. And eventually he realised that, if he wanted to be effective in actually sabbing the hunt, he needed to look for the fox, and respond to that.

Incidentally, the sab also told me that once you got used to looking for the fox it was tempting to point it out to a fellow sab, but this was actually a bad thing to do, because someone from the hunt might see you and that would help them locate the fox. Another step on from this, I guess, is to point in a different direction to the where you know the fox is.

Anyway, recently this hunt sabbing story came back to me when I was thinking about executive pay. It strikes me that we are at the point where a lot of people in the policy world still have their eyes on the equivalent of the wrong bit of the hunt. As I've repeated regularly lately, I think we need to be honest about the limitations of shareholder engagement in respect of executive pay. Plenty of corp gov people are feeling pretty jaded about exec pay, not just the amount of their time it takes up, but also their inability to put much of a dent in the upwards trend. Despite this, it is a common retort from policy types when something like the IDS report comes out that we need more shareholder activism. I don't disagree, but this is only part of the story.

As I have again said quite often recently, remuneration committee reform strikes me as the most fruitful territory, though it needs thinking through. It is not popular, there is a lot of unthinking resistance to the idea of employee representation, for instance. In part I think it's force of habit, as we are essentially trying to teach people look at another part of the hunt, which may well have more importance, and changing our ways of thinking can be tough work.

It is striking too that increasingly people on the Right talk up shareholder activism when discussing executive pay. Probably it results from the same force of habit. But I also wonder if in some cases this is the equivalent of making sure they don't point to the fox. Greater employee influence within a business may have more impact on executive pay than improving disclosure to shareholders and/or retooling their powers. Maybe, therefore, it makes sense to keep talking up the shareholder oversight model, and suggesting further reforms to strengthen it, lest attention wander elsewhere.

Because if people on the Left are starting to think strategically about what is else is to play for when looking at corporate governance reforms to address executive pay, shouldn't we assume the same is true of the Right?

Friday, 28 October 2011

Exec pay rises, no surprises

Latest figures from IDS out this morning show that FTSE100 directors total earnings went up by an average of 49% in the past year. The median is a less racy 16%, but still way, way ahead of what the rest of the population can expect. Is anyone surprised by this? I'm not. I'm well past the point of expecting to see any self-restraint.

The IDS figures will be based on public disclosures in annual reports, which in turn will have been seen by shareholders, who voted on the remuneration reports contain therein. And I think I'm right in saying that the number of FTSE100 remuneration reports defeated this year is zero. As it was last year. You have to go back to 2009 to find a defeat, two in fact - RBS and Shell.

We did some analysis at work of voting in the FTSE100 in 2010, based on asset managers' public voting disclosures. Five managers - all big ones - supported 90%+ of the remuneration reports on which they voted. That is part of the story - most remuneration reports get passed with thumping majorities because many institutions still vote for the large majority of them.

So if shareholders aren't effective enough on their own as a restraining force we need to bolster the system elsewhere. Rem comm reform is the obvious next place to go - address the decisions that shareholders have to take a view on.

Wednesday, 26 October 2011

News Corp results

Everyone will have seen these by now, but to recap James Murdoch topped the poll as the director non-Murdoch shareholders would most like to eject, closely followed by Lachlan. The votes against were 35% and 34% respectively, a fair bit higher than the working assumption of about 25% against and, importantly, a majority of the independent votes.

As I have written before, now the News Corp AGM is over and done with I think that pressure for change will come from a number of sources. I hope investors go back to News Corp on the back of the AGM results and continue to push for change. The board has given out the message that it still thinks, for example, that a combined chair/CEO is appropriate so they aren't going to roll over.

In the near future we have James Murdoch in front of the DCMS committee on 10th Nov, and facing re-election as BSkyB chair on 29th Nov. I expect he'll be in for a pretty rough month, as even BSkyB investors are losing faith with him. Also expect to see more hacking developments break in the press. The Indy has clearly got some good lines in as evidenced by this morning's scoop on 'the Hub' - a mobile phone just used for hacking that was kept.... in the NOTW newsroom. ie it wasn't hacking by proxy via Mulcaire etc.

There are quite a few disgruntled NI people now out of work. Especially when they have been given an unceremonial heave-ho, what incentive doe they have to keep quiet now? So I reckon we can expect more to come out.

Personally speaking, I intend to blog about other subjects again soon!

Saturday, 22 October 2011

News Corp AGM

So, after all the fighting, the News Corp directors were re-elected as expected. But what we still don't know is exactly what the results of the meeting were. According to an official statement bunged out on Friday PM, the results won't be made available until Monday.

Obviously the company knows the result, and will have known it for a few days. Delaying the release of the actual results suggests that we might have had some high votes against some directors. As one journo I spoke to yesterday pointed out, it's an odd PR move as this creates another story on Monday. Could be very interesting.

Meanwhile attention will turn to the BSkyB AGM, which is rapidly approaching. I am now of the view that if non-News Corp shareholders re-elect the current chair they will have made a major mistake. I would just about argue that there is a fiduciary issue here. There is enough information in the public domain to raise big questions about his continued position on the board (see Julian Pike testimony to DCMS committee for latest twist). Voting to re-elect him as chair must in turn put the spotlight on whether investors have really done their homework.

Tuesday, 18 October 2011

Where News Corp goes next

Though its AGM is fast approaching, I think we can safely say that what happens to News Corp will largely not be determined by its (non-Murdoch) shareholders. Not directly at least. As is well known, despite holding an minority smallish chunk of News Corp's shares, Murdoch Snr has the whip hand in terms of voting rights. Add in some friendly faces, and knowing the passivity of many asset managers, and no-one really expects any directors to lose their seats on Friday.

The global shareholder opposition to the existing News Corp board is truly impressive, and a rarity. I know from experience how difficult it is to get investors both on the same page, and willing to take a public position on the need for reform. In that sense I struggle to think of a similar case to the forthcoming AGM. There will be some very big votes against News Corp directors and, if I were a betting man, I would say that James Murdoch will take the biggest hit (he is the one director everyone seems to be voting against).

But let's be clear how we got here, and where things are likely to go. Essentially News Corp has been undone by the efforts of investigative journalism, a few key politicians and some celebrities. Shareholders have come late to the party and many don't seem to have followed developments closely (hence I think a few have been very shocked and, no doubt, will be again in future). Shareholder pressure has developed as a further source of pain for News Corp once the initial blows had been landed.

Looking ahead, I suspect that the key players in deciding News Corp's fate will be a mixture of politicians, regulators, rival media, whistleblowers and law firms. Post-AGM shareholders will probably find they exercise the most influence via the last group, but I suspect they will largely play a supporting role. So let's examine who might cause problems for News Corp and why.

1. Politicians. There are a number of political interests here. First up the Coalition knows that allowing a revised News Corp bid for BSkyB to go through would look rather bad. So they don't have much to gain by letting News Corp have an easy ride. Add to this that, so far, Ed's one major success has been the way he called the hacking scandal and you can bet he will continue to try and push Cameron hard on this. And let's not forget the DCMS committee. At some point it's going to publish a report on hacking. That is bound to include some commentary on News Corp's governance, and some of the key individuals who are still there. A critical perspective could put an awful lot of pressure on.

2. Ofcom. It essentially has a watching brief on 'fit and proper' as it applies to BSkyB's licence which can include taking account of the behaviour of News Corp. So if the DCMS committee report comes out very critical this could be an important factor. The role of the current BSkyB chair sticks out like a sore thumb I think.

3. I would keep watching The Guardian and, increasingly, The Indie. Both have turned up a lot of info that has fed investigations into hacking. Last week's Nick Davies' piece on the WSJ pumping up its circulation figures shows that they are starting to look at whether other parts of the Murdoch empire are infected. I imagine that computer hacking, which a) a lot of people expect to be the next element of the scandal and b) is the subject of its own police investigation, will be the subject of some coverage.

4. Whistleblowers (though perhaps this is too grand a term). As Tom Crone and Colin Myler's decision to openly and publicly contradict James Murdoch's version of events shows, there are some disaffected former employees now on the prowl. Some clearly feel they have been let down by the company they worked for, and as such News Corp can no longer rely on them to keep quiet. This could result in further damaging revelations.

5. Law firms. Add wrongdoing to cover-up to misleading public statements and legal firms who work on behalf of shareholders will get interested. This could be quite a big deal.

So in all of this shareholder pressure may play a relatively minor part. I make this point for a couple of reasons. First because what has happened at News International for sure, and perhaps elsewhere in News Corp, represents a major scandal. If shareholders can't really make much headway in a case like this (in part because of the way News Corp's share ownership is structured) don't get your hopes up about the prospects for shareholder engagement where the rights and wrongs are less clear cut.

Second, because in reality it has always been like this. In the real world holding companies to account for poor behaviour has always required a range of stakeholders putting on pressure - shareholders cannot usually do it alone. This is important when thinking about shareholder engagement in a public policy context, where it is sometimes held out as a non-statist 'solution' to various problems of corporate behaviour. Or to look at it from the other direction the primacy granted to shareholders in governance is sometimes held out (mainly by the Right) as a reason why government/regulators etc should not and need not stick their noses in.

Therefore my conclusion from my experience to date with News Corp is that it demonstrates the need to try and form effective coalitions, but coalitions that go beyond the investor community alone.

Sunday, 16 October 2011


Only kidding, but I thought I should contribute some wordage on the 'Occupy' movement. It is safe to say that the attitude of most Labour supporters is cautious, if not hostile. Cautious in the sense that lots of people with long memories will have seen similar 'popular' movements come and go without any lasting impact. Cautious too because it is clear that, unlike much of the anti-cuts 'movement', such as it is, these 'Occupy' types seem to come from a bit of the Left that doesn't have much faith in Labour.

Clearly some Labour supporters are more than cautious, they actively dislike the 'Occupy' movement. This, I think, is principally a fear of contagion from associating with what looks like it might be a 'far Left' protest. Plus they don't like the idea of Labour being linked with anything that looks 'anti-rich'. Sadly, there is a strain of "protests are a waste of time" thinking lurking in there too. I'm a bit of a pessimist myself, but find the fact that we apparently have such low expectations of politics outside the official channels a bit depressing.

If I'm honest, I share a lot of the scepticism I hear from other Labour supporters. This looks a bit too much like the wave of anti-globalisation protests in the 90s and early 2000s for my liking. Not just the incoherence in terms of objectives, but also the make-up of the movement. And yet, despite all this, I think there is something worthwhile here.

Incoherent they may be, but the movement has articulated points that surely most of us Labour supporters believe. The finance sector does have too much political power, and it is unaccountable, and the public at large is having to pay for the failures of this part of the private sector. This all comes with huge caveats - clearly very few people in the finance sector caused the financial crisis, entire bits of it were not culpable. Equally, we can't overlook the fact that politicians, even our own mob, have their fingerprints on this mess too. But the core idea that motivates these protests is seems to me basically not a bad one.

This is an era when our opponents on the radical Right are trying to reframe the financial crisis as a failure, even crime, of the state and/or politicians. I have heard senior people in the investment industry - the sort of people whose views carry weight in my corner of the world - come out with a version of the financial crisis where almost all the blame lies with politicians and regulators. Therefore to me it seems tactically stupid to not at least offer some words of encouragement to those who tell what, I think, is a more truthful version of events.

Plenty of folks on the Left have openly pondered why there has been no populist left-of-centre reaction to the financial crisis, instead it seems to have benefited the Right. What we are seeing with 'Occupy' looks like an attempt to kick off such a populist campaign, yet we seem to be uncomfortable with what we are looking at, perhaps in part because they are not 'our kind of Left'*. Perhaps the protests will fizzle out, my own view is that they probably will, but then I thought the US protests would have evaporated by now. But if the movement does blow away with the next wind perhaps that will be because people who basically share the same underlying concerns, but are suspicious of those articulating them, stand aloof.

Let's be honest about our own lack of knowledge too. There will be people within Labour who argue against the 'Occupy' protests as 'unrealistic' or 'ill-informed' or whatever, who have no greater knowledge of the City than those camped out at St Pauls. There are plenty of people who actually work in the City whose views about it are significantly more radical than moderate Labour types. It's partly because they know where the bodies are buried, no doubt, but it's a useful corrective nonetheless. There is a lot to be critical of and what needs changing is not necessarily easy to articulate, so perhaps exactly what we need right now is a simplistic populist message that gets the right basic point across.

You won't find me up at Paternoster Square any time soon. Quite apart from the fact that I think it's a slightly silly target (why the stockmarket? and few people even know what the 'new' stock exchange building looks like), I don't have the free time to camp out at a protest and, to be honest, I am put off by the fact that it looks a bit green/crusty/anti-globalisation so far. But in my heart of hearts I can't help but hope this message begins cut through because, basically, I think it needs to be heard.

* It appears that the original idea may have come from the Adbusters group.

News Corp news - Calpers

It's pretty much a clean sweep from investors so far. Any more to come? European public funds perhaps? Anyway, here's Calpers:

(Reuters) - Calpers, the biggest U.S. public pension fund, said on Friday it would withhold its votes for the reelection of Rupert Murdoch and sons James and Lachlan to the News Corp board of directors.

The California Public Employees' Retirement System, best known as Calpers, also said in a statement that it would withhold votes for Arthur Siskind and Andrew Knight in protest of the dual class voting structure at the company.

The pension fund said it aims to "rejuvenate" the News Corp board with new independent directors.

Calpers owns approximately 1.45 million News Corp shares.

Also on Friday, Hermes Equity Ownership Services, the shareholder advisory service affiliated with Britain's largest pension fund, urged investors to vote against the reelection of all Murdoch family members, Siskind and Knight.

The annual general meeting of the media group, under fire for a phone hacking scandal, is scheduled for on October 21.

Friday, 14 October 2011

News Corp news - Hermes opposes Murdochs

Good round-up from The Grauniad here. Bit on Hermes position below.

Hermes Equity Ownership Services (Hermes EOS) is the latest shareholder advisory service to advise its clients not to support all the members of the News Corp board at the annual meeting on 21 October in Los Angeles.

Hermes EOS, linked to the old BT pension fund, said on Friday it had stepped up its discussions – or "engagement" as it is known in the corporate governance world – with the media company since the phone-hacking allegations.

Explaining Hermes EOS's decision to withhold support from five directors - Rupert Murdoch, James Murdoch, Lachlan Murdoch, Arthur Siskind and Andrew Knight - Jennifer Walmsley, director of Hermes EOS, said:

News Corp has not reacted with sufficient urgency to investor concerns about its board composition and corporate culture. The time is right for the company to appoint an independent chairman to rebuild trust, help correct the governance discount, and ensure that the interests of all investors are properly represented.

Wednesday, 12 October 2011

Misys remuneration revolt

Dunno how I missed this (pdf). I'm always a bit sceptical when larger companies' RNS statements on AGM results simply say that 'all resolutions put to the meeting were passed', and this is a good example why. Technically 100% accurate, but disguises a 37.5% vote against the remuneration report, which will put the company amongst this year's outliers.

UPDATE: Actually to be fair, having checked, Misys took the same approach to their AGM statement last year.

Monday, 10 October 2011

News Corp news - ISS recommendations

And it's not getting any better for News Corp...

Investor adviser Institutional Shareholder Services said owners of News Corp. stock should vote against 13 of the media company’s 15 directors, including CEO Rupert Murdoch and his sons, in light of the phone-hacking scandal at the company’s former News of the World tabloid.

ISS, which advises institutional shareholders on corporate-voting matters, said the phone-hacking scandal “laid bare a striking lack of stewardship and failure of independence” of News Corp.’s board, according to an executive summary of the report released Monday by ISS.

News Corp. owns The Wall Street Journal.

The company said it “strongly disagrees” with the ISS voting recommendations. “The company takes the issues surrounding News of the World seriously and is working hard to resolve them, however ISS’s disproportionate focus on these issues is misguided and a disservice to our stockholders,” News Corp. said in a statement.

News Corp.’s 15 directors are standing for election at a shareholder meeting Oct. 21 in Los Angeles. The two News Corp. directors that received ISS’s support are Joel Klein, a News Corp. executive, and venture capitalist Jim Breyer. They are newly appointed to the board.

Amid questions about the oversight of News Corp.’s board, Rupert Murdoch in August said the media-and-entertainment company’s board is “very strong.”

Sunday, 9 October 2011

News Corp news - Glass Lewis recommendations

Picked this up over the weekend, Glass Lewis (a big proxy adviser influential in the US market) has put its report on News Corp out. Not good reading for James Murdoch (or Lachlan). Next up will be ISS presumably. If they come out against JM things could get interesting. The digger can account for 40% of the votes, plus he has some investor allies, so it's very unlikely a director will be unseated. But I think we'll see some big votes against this year.

Thursday, 6 October 2011

LAPFF statement on News Corp

Here it is:

Pension funds want a line drawn under hacking scandal

News Corp can only move on from the hacking scandal if it overhauls its board structure in the wake of the phone hacking scandal, according to the UK’s leading shareholder activist body.

The Local Authority Pension Fund Forum (LAPFF), whose 54 members have combined assets of £100bn, has issued a voting alert to its members this week on News Corp. Having undertaken extensive research into the phone-hacking scandal, and having engaged with News Corp directly, LAPFF has reached the view that board change is necessary. The Forum believes that lead director Rod Eddington is well placed to take this process further.

Although LAPFF would have preferred to see a fully independent process put in place, the Forum has also taken the view that Viet Dinh’s internal review in response to the hacking scandal must be given time to reach its conclusions.

Therefore LAPFF has recommended that its members vote for the election of Rod Eddington and Viet Dinh. LAPFF has also recommended a vote in favour of Andrew Knight, who has also played a positive role in engaging with the Forum.

The Forum believes that the News Corp board must take responsibility for the hacking scandal and that this would be best achieved by a change to its existing membership and structure. LAPFF believes that James Murdoch’s continued presence on the News Corp board is causing significant reputational damage to the company and is no longer in shareholders’ interest. The Forum has therefore recommended that its members oppose James Murdoch’s election.

LAPFF also wishes to see a separation of powers at the head of the company, and the appointment of a genuinely independent chair. The Forum has recommended that its members oppose the election of Rupert Murdoch, who currently holds the combined roles of chair and chief executive.

Forum chairman Ian Greenwood said: “News Corp and its shareholders desperately want to draw a line under this scandal, but that will only be possible if the board accepts the need to demonstrate real accountability. That requires a change in the structure and the make-up of the board. Whilst these are difficult issues for the company to address, we believe that to secure News Corp’s long-term future such reform is necessary.”


News Corp news part 1

Some more hacking-related news, before I get stuck into investor developments.

1. An interesting bit in The Grauniad about the current state of play on hacking claims. Note that Mark Lewis (the guy who represented Gordon Taylor) says that News Corp may not have put aside enough to cover all the potential claims.

2. Incredible, but it does look like Sarah Payne's voicemail was indeed hacked. I don't think this will be the worst to come out either.

3. Kelvin Mackenzie's phone was hacked too. Yeah, I know, boo hoo hoo. But the interesting bit in the Speccie piece is this:
"I had always believed that the pin codes of mobiles were 0000 or 1111 and that’s Linkwhy it was so easy to crack. But no. In my case it was something like 367549V27418. That surely must kill the idea that the hackers guessed or blagged the number — they must have had inside help from the phone networks. "
4. Actually BSkyB news, but this bit in the Standard was interesting. Has the AGM date been shifted to fit around JM returning to the DCMS committee? And if so, can anyone think of a precedent for this?

Wednesday, 5 October 2011

The FSA and corporate governance

Have to say I find this a bit surprising. It's not an isolated example either. It immediately makes me think that those in the UK investor community worried about the EC's possible tilt away from 'comply or explain' may be looking in the wrong place for a fight.

I think this is indicative of a much wider trende. I have been saying for a while that the likely outcome of the failure of market oversight of financial institutions would be a shift to a more regulatory approach to governance. The fact that the FSA is engaging with a bank to get it to strengthen its board is a good example of what we may begin to see more of. I'm also interested in whether/how the FSA communications concerns to investors.

Anyway, looks like the first bit of practical evidence for the regulatory turn and it's happening in our own backyard. People in the UK investment community love nothing better than moaning about ill-informed European civil servants mucking everything up, and latterly this has included corporate governance. I'm starting to wonder if that says more about their own politics than what is really going on here.

Monday, 3 October 2011

News Corp news

Thought I should keep track of any investor related news on News Corp and phone hacking. I'm sure most people already know about ACSI, but in case you missed it, here is their statement from last week. They have recommended voting against -

Andrew Knight
Arthur Siskind
James Murdoch
Lachlan Murdoch
David De Voe
Natalie Bancroft

I'll put up any similar statements as they come out. US public sector funds may say something for instance.