Friday, 7 December 2018

Interserve / Kier Group short selling etc

Following on from Kier Group (and Carillion, of course) it looks like Interserve is facing some serious financial pressure. According to the FT there are "rescue" talks underway that involve a debt for equity swap that would largely wipe out existing shareholders. It is also suggested that subsequently the company would attempt a rights issue (if I'm reading it right). I can't imagine that would be a popular one, and there is an anonymous quite from a banker suggesting as much.

Anyhow, I thought I'd take a look at the short positions. Bear in mind that this is only capturing shorts disclosed by the UK regulator that are above 0.5% (you can get better/more extensive data from from IHS Markit but I don't have access to it). The 0.5%+ positions currently stand at 5.69% for Interserve - actually down a bit from last week. Here's a screenshot from Shorttracker (which just captures the FCA data) that shows the historical trend.


The share price didn't do much today buy has nearly halved in the past month and is down roughly 80% this year. Given that the FT story has just broken there might be some action on Monday.



Also had a quick look at Kier Group. Its share have more than halved over the past month, mostly of the loss in response to the emergency rights issue. The short position is also down, from about 14% to 12%.

Again, remember that actual total shorts will inevitably likely be higher (presumably there are some out there between 0% and 0.5%). Dunno if the slight downward trend means anything or not. Maybe some shorts feel they've made their money? Maybe some stock lenders want their shares back?

Anyway, will keep an eye on both

Thursday, 6 December 2018

Capita recruits employee directors

Just a "workers on boards" nugget, but Capita has announced it is seeking to recruit two employee directors. You can read the press blurb here or the story in the Times here.

When I dug around a bit I discovered that this had actually been announced back at the start of August in the H1 results:


So that's three companies so far that I know that will have worker directors next year (First Group, Mears Group and Capita). This will obviously go higher. I reckon in a few years it could be quite commonplace.

Sunday, 2 December 2018

Major shareholder turns against Ryanair board

Just a quickie, but I spotted last week that Baillie Gifford had voted against the re-election of both David Bonderman (chair) and Kyran McLaughlin (SID) at the Ryanair AGM in September.


Why does that matter? Because Baillie Gifford is a large (4%) and long-standing Ryanair shareholder and, as far as I can see, has not opposed any board members in recent years.

Another straw in the wind I think.


Kier Group in trouble

Kier Group's shares took a nosedive on Friday afternoon, after the company announced a £250m rights issue intended to pay down its debt. The background to this, according to Kier Group, is a mixture of lenders pulling back from the construction sector, more scrutiny of debt levels by potential customers and pressure to reduce payment times to suppliers.

Some of the comments in the coverage from Friday are toe-curling. For example, here's a snippet from the FT:
Alastair Stewart, an analyst at Stockdale Securities, said: “This was clearly an emergency rescue rights issue, required by some of their lenders at breakneck speed. A few years ago Kier were seen by the industry including rivals as probably the most conservative, solid company in the sector. Now it looks like the banks have given them a month to save themselves.”
Kier Group is one of the most heavily shorted UK stocks. According the FCA's list of disclosed short positions (which only lists 0.5%+ positions) total shorts at that level and above are almost 14%. That is the largest total short position in the list, and given that there are likely to be other shorts out there below 0.5% the real total could be a few points higher. (I think I can see about another 2%)

Here's a chart nicked from ShortTracker showing how FCA disclosed short positions in Kier Group have changed over time. Obviously negative sentiment has been on the rise throughout 2018.


Who is behind it? Below is a list of the firms reported by the FCA as currently shorting Kier Group. Note that Marshall Wace actually has two short positions held by different bits of the firm, totalling 4%.


After that the next biggest short is BlackRock, with 2.44%. BlackRock also has a long position. According to the most recent annual report, this stood at 5.9% as at 19th September. So as well as having the second largest short position in Kier Group, it also has (or had) the third largest long position.


And for good measure BlackRock also appears to manage some legacy Kier Group pensions.


And another notable player in the Kier Group shorts list is Naya Capital. This firm gave the Tories £100k in the run-up to last year's general election. So another public sector contractor being shorted by a firm that funds the party in power.


If any of this sounds familiar, that's because there are a lot of similarities with Carillion. The same firms shorting, and similar links. Let's hope the company has a rather better outcome.

Back on the long side, Woodford and Aberdeen Standard have very big positions (14%ish and 13%ish respectively according to CapitalIQ). In the latter case there is a decent chunk of UK pension fund money in the mix. Looking further down the share register, it is notable that the BAE pension scheme is also heavily exposed with 2% (one of a number of large positions they hold in UK companies that I have come across).

Coincidentally Kier Group just held its AGM. On the ballot were two resolutions seeking authority to disapply pre-emption rights. Not uncommon, but a bit more meaningful now. Both passed with spanking majorities. I can only see a couple of disclosed investor votes on the AGM so far - NBIM and BMO - and no oppose votes on either. But they aren't major holders anyway, NBIM having cut its position right back.




Finally, in case you were wondering, the total disclosed short position in Interserve on the FCA list stand at 6.4%. We might expect to see that creep up as concerns about the sector spread.

Thursday, 29 November 2018

Sports Direct - Mike Ashley's declining popularity

Perhaps others spotted this at the time, but I just realised that Mike Ashley saw a very sizeable vote against his re-election at the most recent Sports Direct AGM.

On the headline vote he walked it with a vote against of just under 10%, or 44m shares. But obviously he's the controlling shareholder so a lot of those votes are his. So if we look at the votes on independent directors (where his holding is stripped out) the total number of minority shareholder votes cast is 120m. So the minority shareholder vote against his re-election was 36.6%. There can't be that many votes against chief execs that are that high. What is more I can see some interesting names voting against him - like M&G.

It's also up from a roughly 20% minority shareholder vote against in 2017, 20% against in 2016 (though including abstentions takes total not in favour to 27%) and 11.5% in 2015.

Obviously there is no chance of him being ousted, but it again shows you how unusual Sports Direct is in governance terms.

Saturday, 24 November 2018

Chief execs, incentives and discounting

A quick plug for Are chief executives overpaid? by Deborah Hargreaves, formerly of the High Pay Centre. Spoiler alert: the answer is YES.

The book is a quick run through what top pay looks like, why it has changed and grown, some of the attempts to tackle it and so on. Of interest to people in the corp gov microcosm, the book is pretty critical of shareholder primacy. As I've argued previously, this has already become the "common sense" amongst left-of-centre policy wonks (last year's IPPR report fleshed out what I think is the centre of gravity now) and I have seen the odd similar approach from the Right too. It does feel like the ground is shifting, so it will be interesting to see if we start seeing more policy / regulatory ideas in this space - one to keep an eye on.

On pay specifically, as always my eye was drawn to the section on motivation (where again I think opinions have shifted, though practice has not). So here's a chunk:

[R]esearch by Professor [Alexander] Pepper... undermines the argument that top executives need ever bigger carrots dangled in front of them to improve their work ethic. He has found executives 'are much more risk averse than standard economic theory would suggest'. This means they value a 'sure' thing such as money more highly than a risky option such as the promise of a share award.

At the same time, 'executives are very high time discounters'. This means that if they know they will not get their share award for another three years, they disregard its value. 'This empirical evidence challenges conventional wisdom about the merits of high-powered incentive plans and pay for individual performance. It suggests that long-term incentives may actually be fuelling increases in executive pay, rather than helping to contain pay inflation.'  

I've always found the point about discounting very interesting, and wonder how execs compare against the rest of us. But it also blows a hole in some of the ideas being pushed as 'reforms'. For example, if you advocate that LTIPs have a 5-year timescale rather than a 3-year one, aren't you just diminishing the value of it in the eyes of execs even further?

I had a back and forth with a defender of the "make pay more long term" school a year or so back, and their argument seemed to be that execs say they don't value long-term rewards because they want short-term ones. To me that sounds self-evident. If you say "I put a lower value on Y than X", you can also express this as "I put a higher value on X than Y" (unless I'm missing something?). So I don't see why we don't just accept that when execs say they value long-term incentives less they mean it.

Of course the reason why some people don't like this conclusion is because then you have to question why - if the function of incentives is to get execs to do what shareholders want - would you change the structure of rewards in a way that makes them less attractive to recipients? If you have a lot invested in a set of beliefs including "long term = good" and "performance-related pay = good" that's going to be lead to some major cognitive dissonance.

Wednesday, 21 November 2018

Voting different ways on the same stock

There's always a danger that a) if pension funds delegate voting rights to asset managers and b) if they appoint multiple asset managers then they may end up voting different ways on the same stock.

Googling around for something completely different the other day, I came across a current example. The fund in question actually has managers that in some cases hold the same stock and, on some pretty significant votes at significant companies they voted different ways. This is flagged up by the fund's investment consultant (I've anonymised the managers):

On Amazon and Tesla, MANAGER A does not believe a separation of CEO and Chair positions would bring governance improvements and did not vote in favor of the resolution. The manager aligned itself with Facebook management on not adopting a responsible taxation code and not requiring reporting of “fake news” or reporting on the gender pay gap. MANAGER A did not disclose its position on the dual-share class issue.

On Amazon and Tesla, MANAGER B took the opposite position to MANAGER A and does believe separating CEO and Chair positions will bring governance improvements and voted against the management. The manager aligned itself with Facebook management on not adopting responsible taxation code but was in favour of reporting on “fake news”, the gender pay gap and abolition of dual-share classes.

Actually the fund has a third manager that also holds one of the same stocks as the other two:


MANAGER C voted against Facebook’s management on the reporting on “fake news”, the gender pay gap and abolition of dual-share classes but did not disclose votes on adopting a responsible taxation code. 

Needless to say, Amazon, Tesla and Facebook are companies that have some controversial practices. But the fund's appointed managers have voted different ways on some key issues.

Thursday, 1 November 2018

Union research shows support for Ryanair chairman even lower than reported

Union research shows support for Ryanair chairman even lower than reported

Shareholder support for Ryanair chairman David Bonderman at the company’s recent AGM was even lower than reported, new research by trade union groups shows.
The International Transport Workers’ Federation (ITF) and European Transport Workers’ Federation (ETF) have analysed the records of shareholder votes published since the Ryanair AGM last month. The research shows that even fewer investors back Mr Bonderman than was initially publicised.
On 20 September Ryanair reported 70.5% of votes in favour of Mr Bonderman, with 29.5% opposed. However, once abstentions are taken into account the level of support for the chairman falls to 67%.
The total drops further if shares belonging to Ryanair directors are excluded, bringing the level of support down to 65%. Based on these results Mr Bonderman is now the least popular ISEQ20 chair, with a level of opposition over 10 times higher than for the average Irish company director in 2018.
While reports are not yet available for all investors, those so far indicate that major asset managers including Columbia Threadneedle and Janus Henderson voted against Mr Bonderman’s re-election, while others such as Allianz abstained. All three are among the company’s top 20 shareholders.
Separately, public data shows that some asset managers have been cutting their holdings in Ryanair over the AGM period. Filings show that Capital Group reduced its stake in the company from 17.01% on 21 August to 14.54% on 15 October, while FMR (part of Fidelity) dropped from 4.94% on 6 August to below 3% on 16 October.
ITF and ETF wrote to shareholders at the beginning of September asking them to vote against Mr Bonderman’s re-election, citing his failure to hold Ryanair’s executive management to account. The same call was also made by the shareholder advisory firms Glass Lewis, ISS and PIRC, all of whom have serious concerns about Ryanair’s corporate governance model.
Following the AGM, the UK’s Local Authority Pension Fund Forum (LAPFF) – one of the major institutional investors which voted against Mr Bonderman – has called for a new chairman to be appointed in 2019. If this does not happen, LAPFF will file a resolution to unseat Mr Bonderman at next year’s AGM.
Meanwhile, the demands of Ryanair’s workers continue to go unaddressed. Although recognition deals have been signed in some countries, the vast majority of workers have still seen no improvement in pay or conditions since the company announced it would begin dealing with unions last December.

Saturday, 27 October 2018

What comes next?

I think that the outlines of a future corporate governance model for the UK are increasingly clear. Whilst I'm a long-term, strong proponent of such a change, I think the range of voices in favour is a good indication that it is likely. In very broad terms I see three linked planks:

1. A move away from shareholder primacy. I know that some argue that actually section 172 of the Companies Act a) doesn't really have much practical impact and b) does sort of promote a wider interpretation of shareholder value. But I don't see a really strong argument against a formal shift. It is an increasingly widely made point that workers have long-term firm-specific risk in companies that deserves to be recognised. That needs to be captured in company law.

2. A formal role for employees in corporate governance. As I've blogged before, all the major political parties have made manifesto commitments to workers on boards in different forms. The Tories have actually gone ahead and made the FRC promote this - in a heavily fudged form - in the UK Corporate Governance Code. Although there are to date only a couple of examples of workers on boards (FirstGroup and Mears Group) the door is clearly open now.

3. Ensuring that workers derive a greater share of the wealth that they create at the point of production. This might be worker-ownership funds, or profit-sharing or some other mechanism. Again it is an increasingly widely heard idea (and Ed Miliband deserves a nod, because this is absolutely what he was aiming at with talk of pre-distribution).

This is a mixture of policies which would have been characterised as "far Left" a few years ago, and they are probably still viewed as such by some in the corp gov microcosm. But I could see them commanding a wide range of support across politics (and this is pretty mainstream social democracy in reality).

A couple of things to think about. In the event of a No Deal Brexit it's possible that the radical Right of the Conservatives take control go down a much more Thatcherite route, in which case this stuff will not happen. So nothing is inevitable.

Secondly, alternatively if this mix does look likely to into force then we have to think about the relative position of shareholders. Strengthening the role of labour means weakening the relative position of capital even if their rights remain the same. This process needs managing. Time to get thinking caps on.

Sunday, 14 October 2018

Patisserie Holdings

Just a couple of bits of info relating to Patisserie Holdings - the company behind Patisserie Valerie.

I had a quick look at filings to see if there was anything of note. One interesting disclosure is this TR1 notice showing that back in April Blackrock cut its position from just under 10% (second only to Luke Johnson) to under 5%. I don't know if Blackrock has a typical index holding in AIM-listed stocks, but in any case that's obviously quite a big cut. It came shortly before the H1 results.

Separately, looking back to the January AGM there was a fairly sizeable level of opposition to Johnson's re-election as executive chair. There was a 2.97% vote against, but many more abstentions. In total 18.5% didn't vote in favour (though voting turnout was low). Having had a quick look at voting disclosures, it appears that managers that abstained included Baillie Gifford, Hermes and Royal London. It looks to me like there might also be a proxy adviser recommendation at play here.

There were also 3%+ votes against the report and accounts and the appointment of the auditor. To be honest if I was Grant Thornton I'd be a little bit concerned by this week's events.  

Saturday, 13 October 2018

Workers on boards round-up

Just a quick round-up of some news that relates to the issue of worker representation on boards. I think the fact that there is quite a bit is indicative of the shift in thinking that is going on.

1. This is old, but I had totally missed it. Mears Group has appointed an employee director, having been elected at the AGM earlier in June with almost zero opposition. It looks like the director was chosen by management, rather than elected by the workforce. Nonetheless we now have at least two UK  companies with employee directors on the board (FirstGroup being the other).

I'll have a dig into the voting on these directors when I have time. However having a quick look at the AGM results it must be the case that some investors that have been lukewarm at best on the issue of employee representation on board in their public policy positions have voted for the election of employee directors in practice.

I can see some interesting voting issues ahead in the next AGM season, but that's for another day.

2. The ICSA has published a poll showing that the large majority of companies are opposed to the idea of worker directors (though 19% are in favour). I assume, given the ICSA's orientation, that respondents are likely to be company secretaries. There is some useful info on how companies are thinking (or not) about the revised UK Corporate Governance Code:
When questioned as to whether or not they had deliberated the UK Corporate Governance Code’s proposals for getting the workforce voice into the boardroom, 29% of companies have not yet considered them and 15% have, but taken no action. Of those companies that have considered the Codes’ proposals, 25% favour the designated non-executive director option, 14% are inclined to combine one or more of the options, 7% are in favour of a works council or similar, 5% have other ideas, 2% would prefer to have an employee on the board and 1% are unsure.

3.  The ICAEW has published a report encouraging companies to consider the benefits of employee directors on boards. This is very welcome, though it's a shame that unions do not get a mention in there. Still, interesting that one group of professional advisers is taking a more positive line on this.

4. Jim Moore on The Independent has published a comment piece criticising Legal & General for going down the nominated NED route.

5. The Evening Standard has published a letter from Luke Hildyard of the High Pay Centre responding to a previous comment piece (which praised L&G) and arguing that employee directors are indeed a good thing.

6. The Bank of England's Andy Haldane has voiced his support for employee representation on boards.

7. The ETUC held a rally outside the European Parliament calling for greater worker participation within companies, including representation on boards.

Saturday, 6 October 2018

Legal & General vs workers on boards

A little bit of news about workers on boards (or the lack of them) in the UK. Legal & General is the first big PLC that I have seen set out how it will address workforce engagement.

Perhaps no big surprise, but they have adopted the nominated NED option:
The Company is also pleased to announce the appointment of Lesley Knox as designated non-executive director for engagement with the Company's workforce, in line with the provisions of the UK Corporate Governance Code (July 2018), with immediate effect. Lesley is currently Chair of the Company's Remuneration Committee and so is well-placed to engage effectively with the Company's workforce.
And it's also worth remembering that is in line with the position adopted by its asset management business LGIM.
The introduction of an employee sitting on a Board or establishing a shareholder committee, in our view, would significantly change the current roles and responsibilities of directors and shareholders. We continue to support the Unitary Board model in the UK and focus our efforts on how Board effectiveness can be improved within the current governance structure. In saying this, we also understand that directors should be accountable to other stakeholders including employees. One way in which there can be better alignment between employees and shareholders is for Boards to better understand the sentiment of employees in the organisation. This can be done by nominating one of the current independent Non-Executive Directors (a “Nominated Employee Non-Executive Director”) to be held accountable for seeking out employees views in the business. This nominated director will have responsibilities to meet with staff at different levels and report back to the Board the findings. Furthermore, in the Annual Report, the Nominated Employee Non-Executive Director should also provide a statement and report back to shareholders at the AGM or Annual Report of what he/she has done to fulfil their remit.
Equally obviously this is going to fall a long way short of the expectations of unions and other advocates of meaningful worker representation. It will be interesting to see if other PLCs follow suit. I can imagine some tension ahead.

Finally, on a related note, there's a piece in the Evening Standard opposing workers on boards and supporting L&G's alternative. There's an interesting bit suggesting that opponents of workers on boards have argued against by reference to directors' duties:
Businesses successfully lobbied that being forced to hire a workers’ rep as a director would make them hostage to unions and get in the way of fleet-footed decision-making.
Besides, they pointed out, the law says directors’ primary duty is to shareholders, not staff. So, under Section 172 of the Companies Act, a director charged with looking out for workers’ interests above all else is breaking the rules.
I think this is a bit off target. For one, as currently formulated the Companies Act does give priority to shareholders but also says they've got to consider impact on workers, environment etc. In addition, if the claim above were true then First Group would have been in breach of the Companies Act for years, since it has a worker on its main board.

Nonetheless, if corporate lobbyists are using this as an argument (and I've also seen section 172 prayed in aid of tax avoidance, large bonuses at banks etc) then it strengthens the case for reform of directors' duties in any case.

PS. Here's what the Companies Act 1985 (section 309) said about directors' duties to employees:

309Directors to have regard to interests of employees

(1)The matters to which the directors of a company are to have regard in the performance of their functions include the interests of the company's employees in general, as well as the interests of its members.
(2)Accordingly, the duty imposed by this section on the directors is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors.

(3)This section applies to shadow directors as it does to directors.



Sunday, 30 September 2018

Just one more thing about Ryanair....

I can see that there were at least a couple of asset managers that did not vote against either David Bonderman as chairman or Kryan McLaughlin as senior independent director. And reasons given for this are that they expect the company to make changes and, if those changes are not made, there is a threat of a future vote against.

But it has also been made explicit by Ryanair that it will remove voting rights from ex-EU shareholders very swiftly in the event of a hard Brexit. So it seems a bit risky to have voted FOR directors that you actually want to see replaced when there is a risk that you won't be able to replace them in future.

I can't help thinking that there is a degree of self-delusion that voting for things you actually disagree with is a sophisticated approach. I don't think those who receive your vote in favour necessarily take it the way you mean it, or present it in the way you want - in this case O'Leary was very clear in the AGM that he wanted the level of support received to be seen as a positive. But if you're under threat of losing your ability to change your vote in future it seems especially risky.

Elon Musk and the SEC

This week has seen reality start to catch up with Elon Musk's Twitter feed. Earlier in the year he famously tweeted that he had "Funding secured" to take Tesla private at $420 a share. This was something of a shock to external shareholders, analysts, the board of directors and so on.

Slightly later, a further blog from Musk stated that although there had been discussions with an investor, taking the company private was not doable in a way that enabled existing shareholders to remain as investors.

This week the SEC sued Musk on the basis that the claims in in tweets were somewhat exaggerated, and sought to have him barred as a director. Musk has quickly settled, and will pay a $20m fine and give up the chair of Tesla for three years, though he remains as CEO.

This much you can read from the news anyway, but what interests me is the governance settlement - getting Musk to give up the chair. This is significant as there was a shareholder resolution at the company's AGM in June that sought exactly this outcome (amid wider investor concerns about a lack of independent representation on the board). But the resolution failed to get a majority. So the SEC has achieved something that shareholders could not on their own.

Well, some shareholders... because for the resolution to fall short some of them must have voted against the idea of having a separate independent chairman. So let's have a quick look at a few votes from some big institutions...

Baillie Gifford, Tesla's largest external shareholder OPPOSED the independent chair resolution and voted FOR directors up for election.



Fidelity (or at least the US funds whose SEC disclosures I could find) also OPPOSED the resolution and voted FOR the board.


T Rowe prices appears to have split its votes on the independent chair resolution (maybe different funds voting different ways?) and voted FOR the board.


Blackrock voted FOR the independent chair resolution and OPPOSED one of the board directors.


Vanguard OPPOSED the independent chair resolution and FOR the board.



Norges Bank voted FOR the independent chair resolution and OPPOSED one of the board directors.


I'll update this as I dig out more votes.

Monday, 24 September 2018

Meade on property

This seems pretty relevant today - a small snippet from Efficiency, Equality and the Ownership of Property that addresses the need to think about ownership of property in addition to taxation when looking at inequality.

"(i) If, in the automated world we are envisaging, a really substantial equalisation of incomes is to be achieved solely by redistributive income taxes and subsidies, the rates of income tax would have to quite exceptionally progressive; and such a highly progressive income taxation is bound to affect adversely incentives to work, save, innovate, and take risks...The system unquestionably involved inefficiencies, though it may be debatable how great those inefficiencies would be.

"(ii) The system could be used to equalise incomes; but it would not directly equalise property ownership. Extreme inequalities in the ownership of property are in my view uliesndesirable quite apart from any inequalities of income which they may imply.

"A man with much property has great bargaining strength and a great sense of security, independence and freedom; and he enjoys these things not only vis-a-vis his propertyless fellow citizens but also vis-s-vis the public authorities. He can snap his fingers at those on whom he relies for an income; for he can always live for a time on his capital. The propertyless man must continuously and without interruption acquire his income by working for an employer or by qualifying to receive it from a public authority. An unequal distribution of property means an unequal distribution of power and status even if it is prevented from causing too unequal a distribution of income."  

Labour's mini Meidner plan

It's been an interesting day for those of us on the Left with an interest in issues of governance and ownership. At Labour conference it has been announced that a future Labour government would both mandate that workers form a third of the board of companies and that new funds would be created to increase worker ownership.
On the latter point, here’s what John McDonnell said: “We will legislate for large companies to transfer shares into an “Inclusive Ownership Fund.” The shares will be held and managed collectively by the workers. The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company. And dividend payments will be made directly to the workers from the fund. Payments could be up to £500 a year. That’s 11 million workers each with a greater say, and a greater stake, in the rewards of their labour.”
According to media coverage, the idea is that each year 1% of the equity of public companies would be transferred to these funds, and eventually they would hit a maximum 10%. The shares could not be sold, but workers would gain from dividends paid out.
On the face of it, this is a scaled down version of the Meider Plan in Sweden, which involved the creation of sectoral “Wage Earner Funds”. Labour’s proposal seems to be pitched (sensibly in my view) more in terms of ensure that those who create wealth get their fair share of it than in terms of socialisation of the economy. But it is still quite an important development.
There are some rather over the top comments out there today from corporate groups who frequently extol the benefits of employee share ownership. I really don’t see why it’s so terrible to make this reality by proactive policy rather than being content with the very limited extent of employee ownership that exists today.
There are few other important effects of this policy that don’t seem to have been covered, so I thought I’d spell them out.

  1. 1. Relations with the company: With 10% of the equity, a worker ownership fund would be one of the biggest shareholders in most PLCs, and the largest in a majority of them. To put this in context, in most cases the worker fund is going to be a bigger player than Blackrock (and the people involved with the fund are going to know a lot more about the internal workings of the company. This means that any company’s investor relations department is going to need to pay close attention to them, along with the board.
  1. 2. Relations with other shareholders: Any significant shareholder interaction with a company would have to sooner or later involve the respective worker owner fund. A bidding company in a hostile takeover will have to try and win it over and the expectation has to be that in most cases the fund is going to be predisposed to reject a bid. Imagine the dynamics if a bidder can’t get them onside, and how that would affect the views of other market participants. And presumably groups like the Investor Forum would have to find a way to work with these new funds too.
  1. 3. Shareholder rights: Once you get over 5% your rights as a shareholder increase substantially. That means worker owner funds could, if need be, file shareholder resolutions, or call EGMs. In practice I’d imagine that the capacity to do this would be a significant enough bargaining tool, but the powers would be there.

Taken together, employee ownership and board representation would mark an important shift in the UK model, though in reality it would only move it towards a more fully-fledged social democratic approach to the economy. You really don’t need to be a Corbynista to sign up to this.
Here, for example, is Roy Hattersley backing a Meidner-style approach in his (really quite interesting) 1987 book Economic Priorities for a Labour Government: “I am for the diffusion of wealth and power — in principle. And I rejoice that the methods of bringing such a diffusion about are likely to improve our economic performance. The creation of co-operatives and the acquisition, by employees, of shares in the companies which employ them — coupled with rights to promote employee participation — is a far more effective way of providing economic enfranchisement than the creation of vast state monopolies which are insensitive to the needs both of workers and consumers…”
And he also recognised that employee ownership could not be a subsitution for other forms of worker representation: “Unless employee share ownership schemes are coupled with rights to information, consultation and representation they may be treated with justified suspicion by many trade unionists. Giving employees more say will not come for a long time — if ever in some large and multinational companies — if we just rely on ownership schemes.”
So it’s not a “far left” plan, it’s entirely within the tradition of a thoughtful approach to political economy that really belongs within the Labour Party. I think we just set our sights too low for too long. And I am glad that Labour is getting its ambition back.

Sunday, 23 September 2018

Ryanair AGM in charts...

Just a bit of fun, but I've put together a few bits and pieces that put the vote on David Bonderman's re-election of chair of Ryanair in context.

To calculate the stats I've used the full AGM results distributed by the company, and stripped out Bonderman and O'Leary's holdings (about 51m shares)

First up, this is how the vote on his re-election stacks up against other chairs in the ISEQ20, based on the most recent numbers available (NB I couldn't find data for two of them).



The next one looks at the votes against and abstentions on Bonderman's election in 2017 and 2018


The final one looks at the split of votes cast and shares not voted (this one includes Bonderman and O'Leary's holdings).



There are some interesting things to note in this one. First, despite the number of shares falling by about 4% between 2017 and 2018 (due to buybacks) the number of shares voted increased by about 3% (27m shares, 2.38% of the 2018 ISC), whilst the number not voted fell by 18.8% (75m shares, 6.6% of 2018 ISC). Turnout (which had been drifting down over the past few years) increased from 66.3% to 71.4%. So in very rough terms terms it looks like an approx additional 5% of shares in issue came into play at this meeting.

I am curious about this. Undoubtedly there was much more focus on this year's AGM, which might have nudged turnout up (and these votes could have gone any of the three ways), but there was also reference in the meeting to some shares being voted at the chair's discretion. It's possible Ryanair used these votes this time having not done so previously, though I have no way to stand this up. To be clear, an extra 5% wouldn't make much difference to the result, but means the non-insider vote might have been edging towards 60:40 in favour.

Final point: looking at this chart, Bonderman actually received the active support of less than half (48%) of the issued shares, compared to more than half (58%) last year.

Friday, 21 September 2018

Ryanair: Airline Getting Battered

Yesterday was Ryanair's AGM, which I attended on behalf of the ITF. The two major stories ahead of the meeting - sizeable investor unrest focused on the board, and labour relations - have merged into one, with a particular focus on chairman David Bonderman.

On the governance point, investors and some analysts have drawn a link between the lack of independence and challenge on the board and the ability to deal with significant problems in the business effectively. On the labour side, the ITF, ETF and various unions have come to the conclusion that the haphazard nature of negotiations with the company signal a problem with its management and leadership. As such, heading into the AGM the ITF, ETF and others were calling for governance reforms, whilst investors like Aberdeen Standard, Royal London and the Local Authority Pension Fund Forum (LAPFF) raised concerns about labour practices.

As such the AGM was really dominated by discussions of both, with Michael O' Leary speeding much of his time talking about union negotiations, in between defending his chairman (yes, a chief executive defending his chairman, not the other way round).

O' Leary largely struck a conciliatory tone, saying the company was working with unions and hoped to have deals done in most markets by Xmas (which I think a number of unions would find a tad optimistic). He also said that the company was very happy to move to local contracts - rather than employing everyone outside the UK on Irish contracts - which is a rather significant shift from his comments after the ECJ ruling last September.

There were a couple of institutional shareholders there - LAPFF and Aberdeen Standard. The former recommended its members vote against the chair, whilst the latter voted for all directors, but on the understanding that it would vote against the chair and the SID at the next AGM if there had been no board refreshment (as in new directors, not a round of drinks for directors).

LAPFF asked a question about EU261 claims in respect of flights cancelled by strikes. It appears that Ryanair expects to go to court in the UK over this, because it doesn't agree with the CAA. It's worth keeping an eye on given the potential amounts involved.

As for Bonderman, he survived the vote today but must be on his way out. At the AGM the company only showed the % votes for - Bonderman only got 70.5%, and Kyran McLaughlin did even worse with 66.8%. But if you add in abstentions, and strip out Bonderman and O'Leary's own holdings, then the chair only got the support of 65% of non-insider shareholders. Plus we know that some of the investors voting for him have said they want change.

To put that result in context, the average vote in favour of a a director of an Irish company is 97.3% according to Proxy Insight, and the next least popular chair of an ISEQ20 company is Martin Keane at Glanbia - the most shorted stock on the Irish exchange based on public disclosures. Keane saw total oppose + abstentions of 24% at the Glanbia AGM. I can't see how a future vote on Bonderman as chair would not see even greater opposition.

I would be very surprised if there is not a new chairman by the time of the next AGM.

Sunday, 16 September 2018

Ryanair AGM

As most people will be aware, Ryanair has its AGM this week, and there is quite a bit of interest in what might happen, particularly in relation to the chairman.

These things are impossible to call in advance. The only thing we really know is the base rate - most directors of most public companies are easily re-elected. In Ireland it looks similar to the UK, with average votes against in very low single figures, and directors are voted out extremely rarely.

So we shouldn't expect an earthquake, but to get a better picture it's worth spelling out what we know so far:

1. Three proxy advisory agencies - ISS, Glass Lewis and PIRC - have recommended that shareholders opposed the re-election of Ryanair's chairman David Bonderman. The poor governance of the company and the chair's long tenure are themes that appear in all this analysis. Also the appointment of a director who is clearly not independent (due to his role at one of Ryanair's brokers) as senior independent director is seen to reflect badly on the chair. The company's labour problems also get quite a few mentions.

2. The major US public pension funds CalPERS and CalSTRS have already voted against Bonderman's re-election (in fact the latter has voted against the whole board).



3. The Local Authority Pension Fund Forum has recommended that its members vote against Bonderman's re-election along with the report and accounts, and will attend the AGM. This is driven by concern about the company's governance and labour relations.

4. Ryanair has banned media from its AGM, leading to negative business comment pieces in Ireland and the UK. I do wonder if this is because they know that some shareholders are going to attend. I imagine. like most AGMs, most institutional investors rarely, if ever, show their faces. But I wonder if the board knows that this time will be different? LAPFF is going to attend, but are others?

5. Ryanair has announced ahead of the AGM that all of its resolutions will be carried by a large majority. I suspect this confidence is based on a combination of the facts that a) a lot of money has already voted, so they can see the votes they have already, and b) it probably knows that it has its major shareholders onside.

6. Those big shareholders are an interesting bunch. As a reminder here are the company's notifiable holders as disclosed in its annual report:

Excluding O'Leary, the other four shareholders listed hold almost a third (32.1%) of its shares. Looking at past AGMs it looks as though turnout has drifted down to around 65%. If that held for Thursday's meeting then they will potentially represent about 50% of votes cast.

I think Ryanair is probably right to feel confident about this group. Looking at votes cast at previous AGMs, I don't think that Capital can have voted against Bonderman or other board members before. Similarly looking at Baillie Gifford's voting record it appears it has usually supported the board (see 2017 votes here, for example, no votes against any resolutions).

Fidelity and HSBC are interesting as I don't know if in either case votes are cast consistently across the group. Fidelity UK's voting disclosure for Q2 2017 shows that they voted against the company's rem report last year. That just about works with Ryanair's disclosed voting results for its 2017 AGM, though (based on the holdings figures in the annual report), that only allows for another 17m-ish votes against cast against the rem report by others. That seems small having looked at how other investors voted, but I've not really dug into it.

The situation for HSBC looks odd until you get into the detail of Ryanair's filings. The voting disclosure for HSBC Global Asset Management for Q3 2017 (available here) shows that it opposed the remuneration report (resolution 2) and abstained on Bonderman's re-election (resolution 3a) at last year's AGM in September. Remember that Ryanair's annual report says that at end June 2017 "HSBC Holdings" held 112m shares. Now compare that with the oppose votes on resolution 2 and abstentions on resolution 3:


Plainly, 112m votes were not cast against the remuneration report (if all of Fidelity's 70m were voted against too we should be looking for at least 180m+ oppose votes) and the abstentions on Bonderman's re-election are even further out.

The explanation for this is that the bulk of the shares attributed to HSBC are actually held by HSBC Bank Plc. For example if you look at this filing from mid August and scroll down to box 10 you can see that voting rights attributed to HSBC Bank Plc are just over 5%, whereas those for all the various asset management bits of the business don't break 0.2%. On the face of it the shares held by the bank were either voted differently to the asset manager, or weren't voted at all.

How those shares will be voted this time around is anybody's guess as I don't know why the bank holds them. My only other experience of banks taking big positions in companies has been in merger situations where they hold shares as counterparties for hedge funds who want exposure via derivatives.

(*Incidentally, there are some other odd things about Ryanair's filings - see bit more detail at the end.)

7. We do know that a number of major Ryanair shareholders have been engaging with the company over both its governance and its approach to labour relations. A quick Google around pulls up a number of examples of this. We can also see that a number of investors, including some with pretty large positions, have been voting against the company. Given both governance and labour issues are front and centre ahead of this week's meeting it's possible that the noise around the AGM will provide a useful focal point for those seeking change.

Most asset managers will also subscribe to ISS and/or Glass Lewis and so they will be seeing the same analysis that has been splashed across the press. Regardless of my own position, I do find it hard to see how anyone looks at Ryanair's corporate governance and concludes that a) it's actually fine and b) reforming it would not help the company get through some of the struggles it has faced.

It took years to get rid of Keith Hellawell from Sports Direct, but prolonged pressure achieved it. Now that the genie is out of the bottle at Ryanair I suspect it will play out the same way there.

8. In light of all the above, I think this take on the AGM is about right:



Roll on Thursday. I'll try and blog as soon as I have any news.


* So, take a look at the major shareholders that Ryanair disclosed in its 2014 and 2015 annual reports. In the 2015 AR, HSBC is disclosed as a major shareholder in 2015, and reported as having been a major shareholder in 2014 and 2013. But in the 2014 AR HSBC is not disclosed as a shareholder in 2014 or 2013 (or 2012).



Therefore it looks like one of these annual reports contains an error relating to who the company's major shareholders are/were - they can't both right, right? And when I have looked at Ryanair filings relating to shareholders crossing reporting thresholds (Standard Form TR-1) again these don't seem to match up perfectly with what is in some of the annual reports. Ho hum.

Tuesday, 4 September 2018

Unions call for Ryanair chairman to go



ITF and ETF call for new Ryanair chairman

The International Transport Workers’ Federation (ITF) and European Transport Workers’ Federation (ETF) are calling for shareholders to oppose the re-election of Ryanair chairman David Bonderman and overhaul the company’s corporate governance practices.
Back in December the company finally announced that it would recognise trade unions for the first time. Progress since then has been erratic and contradictory, with Ryanair signing recognition deals in some countries while leaving workers no choice but to take industrial action in others.
Ryanair still has a long way to go in order to build a mature relationship with unions, improve its employment practices and ensure fair conditions for its employees.
The low-fare model has made aviation accessible to all and has provided thousands of jobs both directly and indirectly. In other low-fare airlines, companies and unions work closely to ensure the best product for passengers and best conditions for workers. To date Ryanair has failed to build such a relationship with workers and unions.
ITF, ETF and their affiliate unions have lost confidence in the ability of the current Ryanair leadership to make the transition to a sustainable, unionised business model. They are therefore calling for shareholders to oppose the re-election of the company chairman at the forthcoming AGM and to appoint an independent chair as successor.
Mr Bonderman has chaired Ryanair since 1996, overseeing a corporate culture which for two decades was virulently anti-union. If Ryanair is serious about engaging with workers and unions then the time has come for fresh leadership. ITF and ETF are aware from discussions with Ryanair shareholders that a number also have concerns about the company’s corporate governance.
Stephen Cotton, ITF General Secretary, said: “In recent months Ryanair has shown its immaturity in industrial relations. At the end of last year ITF, ETF and our affiliates welcomed the prospect of a new era of cooperation with the company. Instead, we have seen the stalling, antagonism and underhanded tactics continue.”
“We believe that these problems partly stem from a seriously antiquated corporate governance model. Keeping the same chair for over two decades and installing former Ryanair executives as ‘independent’ non-executives does not lend itself to proper scrutiny and challenge in the boardroom.”
Eduardo Chagas, ETF General Secretary, said: “The time has come for Mr Bonderman to go. It is hard to see how a business like Ryanair can move on when its chairman is stuck in the last century.”
“Ryanair’s business model is built on social dumping and the exploitation of workers. Unions standing together to fight such behaviour is at the heart of our Fair Transport Europe campaign. A different Ryanair is in reach, but a change in leadership is a vital step to shake off the company’s legacy of bad behaviour.”
ITF and ETF have written to Ryanair shareholders asking for them to vote against the re-election of David Bonderman as chairman at the company’s AGM on 20 September. The letter can be read here.

Sunday, 26 August 2018

Conflicts of interest, alignment etc

Three sort of related thoughts that I have had recently, when thinking more about competing interests within the firm etc.

1. If there were really no tension between different interests (i.e. managers, workers, investors) then it should not matter who has control rights. For example, if we think that the "real" corporate governance problem is self-interested managers, then it should not matter if the monitoring/accountability solution is worker representation on boards and/or voting rights, or enhanced shareholder rights. 

I think actually a lot of ESG people do tacitly believe that there is a conflict of interest, even while they also remain convinced that shareholders can act as a sort of proxy for the public interest. I think this is why they get wobbly about workers on boards, but often don't clearly articulate why. But then if there IS a conflict of interest then we should really discuss why the UK corporate governance model prioritises the interests of one set of stakeholders (investors) over others.  

2. On a kind of related point, it struck me that most accounts of what is wrong with executive pay seem to have their preferred villains. If you are more to the Right (even if you don't know it), I suspect you're going to be more likely to see the problem as one of stupid public policy interventions and agency issues that can be tackling by market oversight (perhaps with a few digs at rem consultants). If you're on the Left you're more likely to see market oversight (and shareholder primacy) as flawed, and be more sympathetic to regulators and policymakers. 

Obviously I'm on the Left, and my biases shake out in the way above. But the more I've been thinking about it recently, the more surprised I am that none of us share the blame around much. I'll try writing about this in more depth in a few weeks.

3. Thinking about executive pay specifically, it struck me that while people talk about equity-based compensation for directors as achieving "alignment" with shareholders it actually really doesn't. Increasingly many mainstream corporate governance people argue for directors to have a substantial amount of their reward tied up in the company's equity, and for it to be held for a prolonged period.

But this is not what the shareholders that most directors interact with - asset managers - do themselves. We do not require portfolio managers to select one stock, put all their clients' assets into it, and hold it for 5 years. Rather asset managers diversify (arguably far too much) and they value liquidity. When there have been tentative attempts to propose or introduce "loyalty" mechanisms for shareholders, these have been opposed in principle and in practice, including by people within the ESG world.

I'm a huge skeptic about performance-related reward in any case, but this point specifically does make me wonder about shareholder primacy mission creep. Shareholders contribute little in practice to companies, yet they have control rights and expect managers of companies to take on a huge amount of firm-specific risk that they would not shoulder themselves.