Thursday, 29 December 2016

Unrealised expectations of unintended consequences - Update

A few years back I started pulling together a list of reforms that were enacted despite dire warnings of unintended consequences. As Albert Hirschman (PBUH) pointed out, despite the focus of conservative/reactionary voices on unintended consequences, an equally important question was unrealised expectations - when a policy was enacted and what was intended just didn't happen. I would say shareholder empowerment as an area of public policy probably deserves some analysis on this point, but that's another argument.

I thought I'd update the list because the Bonus Cap is a great example that we really mustn't forget.  

Reform - the Bonus Cap - bonuses in qualifying financial institutions should be a maximum of 100% of salary, or 200% if shareholders approved it.
Predicted unintended consequences - base salaries would increase to compensate (mainly) bankers, banks fixed costs would increase significantly, financial instability would increase.
Actual consequences - base salaries only rose a bit for a few bankers, fixed costs therefore did not increase materially, and financial instability did not increase either.

Reform - July 2000 Amendment to the Pensions Act requiring disclosure of pension fund policy on social and environmental issues.
Predicted unintended consequences - would make trustees the target of single issue campaign groups, would lead to pension funds screening out various types of stocks with a negative impact on the UK economy.
Actual consequences - a few more SRI mandates, though no noticeable increase in screening, more asset managers add corp gov/SRI staff (a positive unintended consequence?), no evidence (none that I am aware of) of funds being targeted because of disclosure of policy

Reform - public disclosure of shareholder voting records (ok, not an out and out 'win' yet, but there's much more data available now)
Predicted unintended consequences - would make asset managers... er... the target of single issue campaign groups, would be a major cost for asset managers
Actual consequences - some media coverage of and trustee interest in actual voting decisions (ie more accountability), negligible impact on costs (based on feedback I have received), more analysis of investor behaviour (ie various surveys)

Reform - annual election of directors
Predicted unintended consequences - would increase short-termism, could lead to entire boards being voted out
Actual consequences - too early to tell? But no examples of whole boards being voted out, and is there any evidence of increased short-termism?  

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