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. 

Saturday, 25 August 2018

Cut and paste hedge fund reporting, again

Back from holidays, so had a quick Google to see if I could find any of that pro forma stewardship reporting that I had been tracking. And, yes, there is more:

Altavista Capital:

Altavista Investment Management UK LLP manages or advises a number of funds with varying strategies. The Code is therefore relevant to some aspects of the Firm’s activities. While the Firm supports the objectives that underlie the Code, it has chosen not to commit to the Code.
The Firm determines its approach to stewardship on a case by case basis, taking into account its duties to the funds that it manages and the actions that will lead to the most favourable outcome for the value of its investments and the interests of its investors.
Furthermore the Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular code relating to any individual jurisdiction.

The Firm provides investment management services to various funds (“the Funds”) that pursue investment strategies that involve investing in a wide range of securities and instruments without limitation in various jurisdictions. If the Firm were to invest directly in UK single equities these would represent only a small part of the firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

The Firm provides investment management services to clients, including a Fund, pursuing an investment strategy that involves investing in global equities. While the Firm may invest directly in UK single equities these would represent only a small part of the Firm’s business. Hence, while the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction.

The next two are particularly interesting....

The Firm provides investment management services to various funds (“the Funds”) that pursue investment strategies that involve investing primarily in equity instruments in various jurisdictions, including UK listed equities. While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

The Firm invests globally, excluding UK equities. The Fund’s investment focus is in commodities, focusing on fundamental based relative value trading with directional overlays. The Code is therefore not relevant to the Firm's trading activities. While the Firm generally supports the objectives that underlie the Code, the Firm has chosen not to commit to the Code.
The Firm invests in a variety of asset classes and in a variety of global jurisdictions. The approach of the Firm in relation to engagement with issuers and their management is determined globally. The Firm takes a consistent approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, does not consider it appropriate to commit to any particular voluntary code of practice relating to any individual jurisdiction

Those two are interesting because, if you look at the URLs, both are hosted on the website of a legal firm called Duff and Phelps which advises investors on regulation and compliance, amongst other things. I wonder if this might be the source of the text?

A bit more Chantal Mouffe

The excerpt below is from For A Left Populism. I found the book a bit underwhelming to be honest, but the idea of approaching politics as a radicalisation of democracy appeals to me. I'm particularly interested in how this would play out in corp gov / ownership issues, where I agree that genuinely radical ideas would not necessarily even be conceived as being "anti-capitalist".
"The current move by the defenders of the status quo to label all of the critiques of the neoliberal order as 'extreme left', and to present them as a danger to democracy, is a disingenuous attempt to impede any kind of challenge to the existing hegemonic order. As if the choice was limited to accepting the current neoliberal hegemonic formation as the only legitimate form of liberal democracy or rejecting liberal democracy altogether...
"Despite the claim of many liberal theorists that political liberalism necessarily entails economic liberalism and that a democratic society requires a capitalist economy, it is cleat that there is no necessary relationship between capitalism and liberal democracy... It is within the framework of the liberal state - the division of power, universal suffrage, multi-party systems and civil rights - that it will be possible to advance the full range of present-day democratic demands. To struggle against post-democracy does not consist in discarding those principles but in defending and radicalising them...
"The process of radicalising democracy necessarily includes an anti-capitalist dimension as many of the forms of subordination that will need to be challenges are the consequences of capitalist relations of production... There are many points of antagonism between capitalism and various sectors of the population, and this means that, when this struggle is envisaged as an extension of the democratic principles, there will be a variety of anti-capitalist struggles. In some cases they may not even be perceived as being 'anti-capitalist' by the people involved in them and many will be conducted in the name of equality and conceived as struggles for democracy.
"People do not fight against 'capitalism' as an abstract entity because they believe in 'laws of history' leading to socialism. It is always on the basis of concrete situations that they are moved to act. If they struggle for equality it is because their resistances to various forms of domination are informed by democratic values and it is around those values, addressing their actual aspirations and subjectivities, and not in the name of anti-capitalism, that people can be mobilised."      

Monday, 30 July 2018

Severn Trent dividends

Another day, another attack on a utility company for putting its investors first....

Press release - Embargoed until 00:01 Thursday July 26, 2018


Dividends and interest worth £190 million were accrued by shareholders in 2017 alone, GMB Union figures show

An investigation by GMB, the water union, has revealed Severn Trent shareholders have made almost £1.1 billion in just five years.
The privatised water company showered shareholders with a total of £190 million in 2017 alone.
Severn Trent wastes more than 400 million litres of water every single day through leaks. [1]
Last month, GMB figures showed Severn Trent’s CEO trousered a whopping £10 million in salary, bonuses, pensions and other benefits over the past five years. [2]
The figures come from a joint investigation into the accounts by GMB and Corporate Watch [3] as part of GMB’s Take Back the Tap Campaign to bring England’s privatised water industry back into public ownership.
While shareholders pocketed these eye-watering sums, consumer water bills in England and Wales have increased by 40% above inflation since privatisation in 1989 according to a report by the National Audit Office [4]
Tim Roache, GMB General Secretary, said:
“Forking out billions to shareholders, while bills rocket and trillions of litres of water are wasted shows just how broken the system is.
“We all need water, it’s not an optional extra, it’s absurd that something we all depend on is in private hands delivering eye watering pay outs instead of being run for the public good.
“That’s why GMB is calling for the water industry to be brought back into public ownership.”
Contact: GMB Press office 07958 156846
Notes to editors:
[4] National Audit Office report: The Economic Regulation of the Water Sector, page 9 (2015) 

Where's Ryanair's annual report?

UPDATE: it's out.

In recent history, Ryanair has usually published its annual report a day or two after releasing its Q1 figures.

In 2017, the day after:

In 2016, the day after:


In 2015, 3 days after:

In 2014, the day after:

In 2013, the day after:

In 2012, the day after:

In 2011, the day after:

Ryanair's latest Q1 results were issued on 23 July.

Sunday, 29 July 2018

Hedge funds and Sky

I thought I'd have another quick look at hedge fund activity around the bidding war for Sky PLC. This looks like it could be quite a profitable trade (especially after several got burnt on Qualcomm / NXP).

As before, some old favourites are in the list. One point of interest is that alongside their derivative positions, some of these funds also have very small holdings in Sky shares. I wonder why this is - maybe to give them some legal rights, or so they can legitimately call themselves "shareholders"? If anyone has any thoughts let me know.

Anyhow, here's why I can see from section 8.3 disclosures -

Elliott Capital Advisors - 4.31% derivatives, 0.0044% shares

Davidson Kempner - 3.07% derivatives, 0.00006% shares

Farallon Capital - 2.3% derivatives, no shares

Canyon Capital - 1.9% derivatives, no shares

UBS O' Connor - 1.3% derivatives, no shares

Pentwater Capital - 0.99% derivatives, 1 (one) share

So that's 13.8% in derivatives in total across these six funds - up from 12.5% accounted for by the same group of funds at the start of the month, though Pentwater has almost cut its position in half.

Wednesday, 25 July 2018

Elias Canetti, centrist hegemony etc

I really like this (as quoted in this):
No-one has ever really believed that the majority decision is necessarily the wiser one because it has received the greater number of votes. It is will against will as in war. Each is convinced that right and reason are on his side. Conviction comes easily and the purpose of the party is, precisely, to keep this will and conviction alive. The member of an outvoted party accepts the majority decision, not because he has ceased to believe his own case, but simply because he admits defeat.
As I've blogged quite a lot, I really like Chantal Mouffe's stuff. A big part of that is the emphasis she puts on conflict, and the dead end of pretending we can avoid it. But I also like the way she talks about hegemony and how it is only ever really a temporary settlement.

What I find interesting currently is that the "centrist" (scare quotes as I don't see Cameron and Osborne as near the centre in reality) hegemony has collapsed but, as per the Canetti quote, centrists don't really believe they have lost the argument. It comes across all the time that centrists think opponents to Left or Right are simply "wrong" and that their own views are "common sense", well-evidenced etc. This is most obvious when you try to get them to say what was wrong between 1997 and 2015. They find it difficult to find much to complain about.

PS. What is odd is that despite this centrist views are still the dominant ones amongst political commentators. The two main parties are polling at about 40% each currently, yet it's a common theme amongst commentators that both Labour and the Conservatives have gone mad, and no-one sensible can support either (but not the Lib Dems either for largely unexplained reasons). Speaking personally, I can't remember a time when there were so few people with a significant platform in the media with whom I agree. I don't think a) this is just me or b) that this is healthy.

Sunday, 22 July 2018

F**k business

Before his latest piece of self-promotion, Boris Johnson had been in the news for making an interesting remark - "Fuck business" - in a conversation about the attitudes of corporates towards Brexit. Though it's a few weeks back now, it seems this remark was largely seen as yet another example of why Johnson was so unsuitable as foreign secretary. It was also seen as significant in terms of how far the Conservatives have fallen out with a previously supportive corporate world.

But as we know, Johnson is rather keen on swimming with the popular tide, so I wonder if actually this remark is more evidence of how the politics of corporate support have shifted dramatically in recent years. Put another way, where once in recent history politicians would have worn corporate support as a badge of pride, now many prefer to define themselves in opposition to business.

I thought this was shifting a few years ago. Some interesting YouGov polling in 2015 found that while a substantial minority of voters thought that Ed Miliband was too hostile to business, more of them thought that David Cameron was too close to business. Of course Miliband lost, but I'm not sure the attempts to get business to speak out against his "Marxist" ideas were as damaging as similar interventions might have been in the past.

An interesting factoid in that YouGov polling was that more UKIP voters (20%) thought that Ed Miliband was too close to business than for any other party (screenshot below). 

This might reflect the fact that, at the time, UKIP was picking up ex-Labour voters. It also shows (if it wasn't obvious already) that there is a strong anti-corporate vibe around the radical Right. 

Of course we saw hostility to corporate influence come up repeatedly in both the Scottish independence and EU referenda, with corporate interventions characterised (not unfairly) as the voice of "the elite" and "Project Fear". I think in both cases it hit home. It's notable that Dominic Cummings of all people says that the cynicism about corporate motives, heightened by the financial crisis, was an important tailwind for the Leave campaign.

Since Jeremy Corbyn has taken over as Labour leader, our policy positions have gone further to the Left (though not actually that far, in my opinion). Labour routinely makes a point of defining itself in opposition to and a challenger of corporate interests, which would have been unthinkable in the 1990s and early 2000s. The Conservatives have tried to ape this, though climb downs such that over worker representation on boards shows that they still find this difficult territory.

This is unlikely to change any time soon. As I've blogged before, polling for the Legatum Institute has shown that on a range of issues the public hold views on corporate/economic issues that are left-wing by today's standards. Perhaps they always held these views, and the 1990s political settlement simply didn't acknowledge them. But now they are certainly in play, and the position of business within politics is radically different to even a few years ago. It's notable that some investors are alert to this.

Boris Johnson might be a self-serving, shallow politician. But he is not stupid. His reported remark is probably a marketing initiative, not a gaffe.