Wednesday, 20 February 2013

Myners vs the Kay Review

The BIS select committee is currently holding an inquiry into the Kay Review. Last week saw Lord Myners give evidence to the committee, and the transcript has just been published. It is really worth a read. I suspect many people's impression of Kay is "good analysis, weak recommendations". In addition, there is a fear that the usual vested interests will smother the Review's already modest ambitions.

If that's where you sit, you'll find a lot to reinvigorate you in this transcript. I think he hits all the right targets. Labour folks reading this should also bear in mind that he's been a fund manager, he's been on the boards of major companies (like chairing M&S), and served as a Treasury minister. Very few people (especially Labour people) have tried to crack the issues around ownership at a senior level from all those perspectives. So when, for example, he talks about the way that reviews like Kay get stifled,he's talking from experience. (In fact I suspect one reason that BIS set up Kay, despite having already done a civil servants-driven consultation into the same issues, was because Myners criticised the idea of a review into such important issues not being independent of govt.)

There's a lot of info in here. The opening statement alone covers a lot of ground, but the core point is that Myners doesn't expect the Kay Review to have a significant impact. In fact, he expects it to have barely any impact at all.

Some interesting further points - he is very critical of Kay for failing to come out with any recommendation on M&A (where I think Kay essentially says govt should keep a watching brief), and instead argues for the Business Secretary to have a more interventionist role (including a public interest test). As he points out the weakness of the Review on M&A seems to be quite out of step with the rhetoric used by Vince Cable way back at the September 2010 Lib Dem conference. If Cable thinks there's a problem with M&A he will now have to over-ride Kay (which is what Myners argues is exactly what he should do).

He also backs a financial transactions tax - which was a genuine surprise to me - and from a policy perspective rather than a revenue raising one. As you might expect, a theme running through the evidence is the erosion of any notion of ownership, exacerbated since the rise of HFT but also a long-running consequence of the nature of the asset management industry. You can sense Myners' frustration that another chance to grapple with these issues has been missed, especially as Kay clearly does understand what a lot of the problems with the asset management industry are.

And the stuff on the way that lobby groups will stifle reform (especially if they get their hands on the 'investor forum') is.... well... exactly what I think too!

A point that Myners makes several times is that Cable could still get a grip of this. Again, I struggle to disagree. The longer I have worked in this area the more convinced I have become that only strong political intervention can sort some of these issues out. There will always be people telling you "now is not the best time" or that "working with the industry" is the best way to go. We have seen the weak results of such an approach.

I think it's probably almost too late for Cable. He has fluffed this process twice as far as I am concerned - once by doing the first mini-review, which wasted a year, then by not ensuring that Kay went as far as he wanted. That means the next big round of reform will (fingers crossed) be under the next Labour government in 2015. I hope we make sure we get Myners involved when we do it.

Anyway, I would recommend Labour and TU people who share my interest in these things read the whole transcript. There aren't many people on our side of the fence who can deliver this kind of thing. Below are a couple of the funnier excerpts.

On the Good Practice Statements: 
Q98 Ann McKechin: It is constant effort. Professor Kay has published a new set of principles, called "Good Practice Statements". The Government has, again, taken a rather hands-off approach, saying that they should prompt market participants to consider their current progress and inform industry-led standards of good practice. How long would you recommend that we wait to see if that approach works, or would you say that we should have moved a lot quicker?
Lord Myners: I think we could probably wait until this afternoon.
And on the idea of 'solving' the remuneration problem by requiring execs to hold shares for a much longer period:

Lord Myners: It is rather romantic. You can say that you cannot realise these shares until your retirement, but the fact is that most of us are not in wealth-accumulation mode when we get to retirement; we are in wealth distribution mode. It would be odd to live on a modest income until the age of 60, and then suddenly have wealth beyond the dreams of avarice dumped on you as the reward for 40 years of loyal service. I somehow do not think that would work.

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