Tuesday 18 July 2017

A new Left alignment on corporate governance

I can't overstate how much I like the report that the IPPR has just issued on corporate governance. I've been boring on for a while now about what I see as the end of the 1990s model of corporate governance for the UK. At the same time there has been some excellent work from the TUC on both the challenges to shareholder primacy and the value of worker representation in corp gov. Plus lots of good blogging on this coming from the Left, particularly from Chris Dillow at Stumbling and Mumbling. And some sceptical voices from inside the system, like Guy Jubb and Chris Hodges.

I think what Mat Lawrence at the IPPR has managed to do is clarify really important, and increasingly evident, problems with the UK corporate governance model. Anyone coming at these issues from the Left from here on in should take Mat's analysis as one of the things they use to orient themselves. We have given the 1990s model, founded on the illusion that shareholders "own" companies, a very good try. We have reached the point that we now have codes to try and get shareholders to act like the model of how agency theory suggests they should act (even laissez-faire in capital markets has to be planned).

Conservatives in all parties talk about how disclosure of executive remuneration has had the unintended consequence of driving up pay levels. Yet they often fail acknowledge that the 1990s compact had two key elements: corporate disclosure and shareholder empowerment. They are largely silent on the failure of that second element. To me (to nick Albert Hirschman's idea) the "unrealised expectation" that shareholders would use that greater disclosure and increased power to act on pay in a way that aligns with the public, or other issues, is of critical importance. I think it's very important/encouraging that the Left acknowledges this point, as this will enable us to move on. I think the Right is still stuck in agency theory textbooks.

As I've blogged before, I think the 1990s model has run out of road. We have tried refashioning the relationship between companies and shareholders to make it work for progressive aims and it has not delivered. When I have a bit more time and headspace I will write my own Mea Culpa. I think the Left is much better advised to view the relationship between companies and investors as a field of activism in relation to specific companies (in the style of Share Action), rather than an area of public policy work. The gains from the latter have not been impressive. We would be better focusing policy work on ensuring that other voices - first and foremost that of employees - get proper representation within the firm, rather than further strengthening the position of shareholders in the hope that they will speak on our behalf.

So, go and read the IPPR report and let's get started on the alternative.

Thursday 6 July 2017

Nex Group chair costs himself £25,000

Next Group, the successor company to ICAP, just managed to publicly humiliate itself by spending company funds on political campaigns.

The company has its AGM next Wednesday and disclosed in the notice of meeting that it had spent £25,000 funding five Conservative Party candidates facing Liberal Democrat challengers in the last election. This was literally a waste of money, since three of the Tory candidates lost.

Following exposure of the donations by The Independent, backed up by a great comment piece, the company issued a statement that the donations were the initiative of the chairman, Charles Gregson, and that he would personally pay back the £25,000. In addition to the media coverage it was clear that various proxy advisers had recommended opposing the resolution at next week's AGM seeking authority to... err... make political donations, and that a number of shareholders would indeed have voted against.  

And they may still. Because there is something pretty disturbing about this case. A PLC can't make donations without shareholder approval. This will be Nex Group's first AGM, so it had not sought prior approval as Nex Group. But the forerunner company had sought shareholder approval at its AGM last year.

Here's what it put in the notes to the resolutions (my emphasis added) in their notice of meeting:

Authority to make political donations (resolution 12)
Resolution 12 is to approve the making of political donations and incurring of political expenditure by the Company and any of its subsidiary companies of up to an aggregate amount of £100,000 in the period up to the Company’s annual general meeting to be held in 2017. The Act contains restrictions on companies making donations to political organisations or incurring political expenditure without prior shareholder approval. The directors have no present intention to make political donations but, because of the broad definitions of political donations and political expenditure contained within the Act, the directors consider it prudent to obtain this shareholder approval. There has been no expenditure under the corresponding authority obtained at the 2015 annual general meeting of the Company. 
This is important. Many companies seek authority to make political donations, but do so to avoid being caught by a wider definition of "political expenditure" (paying for stands at conferences etc). When seeking these authorities companies typically explicitly state that the authority will not be used to make political donations. As you can see, ICAP strongly suggested this would be the case. But donations were made by Nex Group in any case (assuming Nex used the carried over ICAP authority).

At the least this is a breach of investor trust, and I seriously question why any shareholder would vote for the resolution next week after this has happened. But I wonder whether a shareholder could argue that this is actively misleading - I've seen cases taken over misleading IPO docs for example. Companies rarely completely fold to campaigners' demands immediately, but the fact that the chair immediately agreed to pay the money back out of his own pocket makes me wonder if the board thinks they crossed a line.

More generally, perhaps it is time that shareholders toughened up on the issue of political spending overall. Why not ask for disclosure of any spending that the company thinks falls within the wider definition of political expenditure? It might shake some interesting data out, and reveal things shareholders may be uncomfortable with.

Finally, I can't help but notice that the chair of Nex Group is also a non-executive director of Caledonia Investments, which people may remember had a bit of history of this kind of thing which also ended badly.