Wednesday 26 April 2017

A decade of blogging

I realised recently that I've just completed a decade of blogging. Although the arrival of two kids means I blog a lot less often than I used to, and read a lot less to blog about, I still feel the urge to communicate. Partly I just enjoy writing, but I also feel/hope that it is worth putting an unequivocally pro-labour and pro-Left voice into the blogosphere on issues like corporate governance, ownership etc.

The benefit of blogging for this long is that I can see some of the trends that have come and go over the period and - I think - see the broad outlines of change. So here are a few general observations after ten years of doing this stuff. NB - I am speaking about the UK here primarily.

1. Obvious really, but the financial crisis had a much deeper and lasting impact than many people on the centre Left initially realised. I think people did initially expect a big shift, but because there wasn't an immediate swing to the Left in policy or in political support many concluded that this wasn't going to happen at all, and that things would carry on much as before, albeit with much constrained public spending. I think we can now see that this conclusion was wrong, but perhaps until Corbyn, Brexit and Trump quite a lot of people still thought not much would change from the 1990s.

What is particularly striking is the disconnect that has developed between technocratic policy wonk opinion and public opinion, and a seeming unwillingness on either side to meet in the middle. I think a lot of mainstream policy people still think that they got nothing much wrong over the past couple of decades, and the public are just too dense to know what's good for them. These people also have considerable influence over our politicians. Hence the tortured political positions we see post-crisis where politicians play to the public with their rhetoric and policymakers with the detail and neither group feels entirely satisfied. Perhaps it was ever thus, but the gaps between policy people and the public and between rhetoric and reality feel very large now.

2. Corporate governance reform involving shareholder empowerment no longer looks like progressive policy. From the 1990s onwards a number of influential people on the Left enthusiastically embraced the ideas that shareholders = the public, that shareholder engagement was a new/exciting way to restrain poor corporate behaviour, and that tooling up shareholders could tackle tricky issues like executive pay. I'm not sure quite when this hit the wall, but I think you would struggle to get many people on the Left to get out of bed for this agenda now.

In large part this is due to practical experience. Shareholders, which mainly means asset managers, have been overwhelming uninterested in tackling the scale of executive pay, and unwilling to engage over labour issues. I think we lost a decade - and corporates gained the same - in fiddling about trying to find ways to make asset managers do things they don't want to, and trying to redesign executive pay rather than just constrain and/or it.

During the same period the nature of the shareholders of UK business changed, so there is now much more foreign ownership. This makes it significantly harder to argue that giving shareholders more power is a good thing for people in the UK. If dividends and voting rights are going to American asset managers (who care even less about executive pay than their UK counterparts) what progressive agenda is being served by giving them a greater say?

For me personally, the way that asset managers and some of the business/finance lobby groups have responded to the question of worker representation on boards is the final straw. It wasn't a surprise, but I have still found it absolutely sickening. There is no way I would personally support any further extension of shareholder rights since many of those shareholders lobby against my interests. And in my opinion the fact that these organisations are increasingly active in public policy is net negative for the Left.

3. ESG progress, from a labour/Left perspective, has been disappointing. To many of us it looks like "responsible investment" is largely about executive pay plus climate change. Labour issues, despite labour rights being central to all the key human rights standards, are still seen as "political" and few investors (with honourable exceptions) seem willing to hold companies to account to anything like the same extent they would do over environmental issues.

I think there are several issues at play here. One is that there is a tussle over resources within the firm (forget the Mckinsey bollox that all interest align over the long term) and some investors don't want to give any ground. Undoubtedly there is a cultural element too - many people in the City hold views on various issues that are further Right than the public, even if they don't realise it. There are few union fans. There is a generational aspect - many younger ESG people have little knowledge/experience of the labour movement and are more drawn to environmental issues. And there is a class aspect to it too.

The net result, as I've said before, is that responsible investment in general gives off the vibe of being about wealthy, globally mobile liberalism. The worst sins in this world view are market imperfections and a lack of meritocracy. But this world view is given airtime through the management of the savings of millions of people who will never get into the top tax bracket or be headhunted for non-executive roles. Again as I have said before I do not think the disconnect between the views articulated by most ESG people and those of the people whose money gives them a job is sustainable.

4. Unions have remained largely focused on pensions as benefits rather than pools of capital, and potential leverage. This has started to change in the past few years but we didn't catch the capital strategies bug initially. I personally think this has been a missed opportunity, though I would prefer to see unions engage tactically with capital where they have specific, achievable objectives rather than waste time and resources trying to rebuild "the system". I've become more convinced of this over the past few years, and I say this as someone who is interested in policy and has enjoyed doing policy work. In my opinion it just doesn't deliver enough to make it worthwhile.

5. There is nothing inherently democratising about markets, widening share ownership, greater participation in the finance system etc, if anything the reverse has been true. The idea of self-determination ends at the office/factory/depot door for the large majority of people I deal with professionally. Hence the hostility towards worker representation in corporate governance. Most people in this world do not believe that business needs to be democratised, but they do believe that more functions in society should be run by the private sector. This can only lead in one direction.

And the same applies to pension funds. Whatever the theoretical merits of the "professionalisation" of trusteeship, in practice it has led to de-democratisation. Across several key markets member trustees have been denigrated and moves have been made to remove them from decision-making. As such the control of capital that belongs to the public has increasingly slipped from their grasp.

Along this path the real threats to the subversion of fiduciary duty have become clear. If you are union person with any experience in pension fund investment issues you will have had lectures about Scargill, and the need not to put political objectives ahead of the interests of beneficiaries. Imagine how terrible that would be.

But it is OK for policymakers and politicians to try and determine the asset allocation that pension funds adopt (ahem... infrastructure) through rewriting investment regulations and altering the structure of pension funds. We now have a situation where policymakers are making all kinds of regulatory tweaks in order to help funnel capital that is supposed to fund our retirements into projects that they won't raise taxes to pay for (even if this might be a cheaper option). I don't remember ever being asked to vote on this one.

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