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.

Shareholder primacy and utilities

A theme I think anyone with an interest in corporate governance should keep an eye on is the way that the interests of investors in a firm in relation to others are portrayed in financial media and elsewhere.

Under the 1990s model it was common to see the point made that actually we are all shareholders, so we have an interest in the performance and management of companies. In the policy world a lot of emphasis has been put on enhancing the powers of shareholders as a way of balancing managerial power. At its most optimistic this stream of work sees the public as somehow having control over investee companies. These sorts of ideas have been influential for around 20 years in some markets.

However, increasingly we see recognition that life is more complicated than this, that interests within the firm compete, and that it's not necessarily a good thing that investors come first. The latest version of the UK Corporate Governance Code is a mild tilt towards a more "stakeholder" view of the firm. I would envisage a further shift when Labour gets back into power.

This piece in today's Financial Mail is worth a read in this light (the same story is on the front of tomorrow's Mirror). In common with what we saw with Thames Water, the interests of "shareholders" are counterposed with those of customers/consumers.  
Professor David Hall, a water industry expert at the University of Greenwich, said water companies should pay out less in dividends and instead use the money to cut leaks by improving their infrastructure. 'The money is available,' he said. 'But it's not reaching the right places – which are the leaks. It's reaching the wrong places – which are the pockets of shareholders.'
Invest in solving leaks, or distribute cash to investors. In the above quote these options are characterised as pulling in different directions. To prioritise one is to damage the other. This is a million miles away from the Mckinsey hot air about there being "no inherent tension" between different interests. (Interestingly Ofwat has a section on its website specifically about "Profits and dividends"of water companies, and its chief exec has had a pop at recent decisions by some companies.)

As I've said before, I think we are going to start seeing this kind of argument a lot more often than we have in the recent past. Obviously this comes with a backdrop of renewed discussion of public ownership of utilities. I think the increasing prevalence in the media of the idea that there are competing interests is will make more radical policy options more achievable. 

Of course, these are difficult issues. It is definitely the case that taking utilities back into public ownership is going to sting our pension funds. It's not obvious to me that there is a investor-friendly middle route. For example, we could look at the UK "owning" utilities through our pension funds directly, stripping asset managers out of the deal and thus reducing costs. I don't think our funds have the scale to do this, nor are they currently structured in a way that would stop them thinking like asset managers. And at some point the dividends vs investment question will come up.

Nonetheless the ground does seem to be shifting.

Saturday, 21 July 2018

Short stuff

Like everyone does, I spent a bit of my spare time yesterday having a quick trawl through the FCA's list of disclosed short positions. Quite often these fishing trips end up leaving me empty handed, but this time I stumbled on something interesting.

I had a look at Kier Group first. Blackrock has a 2.31% position in Kier Group, so first I had a look to see if they had any other relationship with the company. From a quick trawl it looks like Blackrock used to run a DC scheme for Kier. See screenshots below or check this link -

However, this piece suggests that the scheme (I think) was subsequently taken over Aegon.

The next thing I did was take a look at the Kier Group share register that is available on Capital IQ to see if Blackrock also has a long position. I had assumed that it would show one since Blackrock runs UK tracker funds that hold everything, but actually it is only listed at the bottom of the register and the number of shares and % holding are negative, disclosed in brackets, matching the position that is disclosed in the FCA list. (NB this is a mistake - Blackrock does have a long position too, scroll down here. Interestingly the long position is smaller than the short).

And when I checked the other managers listed with negative holdings (again listed in brackets at the bottom of the Capital IQ register) sure enough they corresponded with other disclosed short positions listed by the FCA. So far, not that exciting, this just shows that S&P dump disclosed short positions into their shareholder database.

So, the next thing I did was look at Ryanair. I've been looking out for disclosed short positions - the Central Bank of Ireland has a register that mirrors the FCA one, but there's nothing there for Ryanair. This doesn't tell us much, like the FCA it has a threshold for disclosure (FCA reports shorts over 0.5%, though it receives disclosures of positions above 0.2% and I assume it has access to IHS Markit which captures way more). The lack of a listing for Ryanair just means there are are no big short positions in the common stock.

However when I went to the bottom of the Ryanair register on Capital IQ... bingo.

I must have looked at the register hundreds of times, but not spotted this or thought of looking there for shorts. Fair play Capital IQ does link to underlying sources, and the negative Ryanair holding listed comes from an SEC disclosure by a firm called Absolute Investment Advisers. The relevant SEC filing is here, but the important bit is in this section -

There it is, the first short in Ryanair that I've been able to completely nail down. It is piddly, but someone somewhere decided to go short. It made me feel a bit less stupid that although the position relates to Q1 2018, the position was only disclosed when that filing was made in early June. So I'm only six weeks late to the party.

Still it's a useful thing to know if you have access to Capital IQ but don't have the IHS Markit feed of shorting/lending data and want to get some basic info.

Finally, I had another look for an example of a manager shorting a client. Blackrock is an easy target because of its scale, so I just picked another large short position on the FCA list - Britvic, where its position is 1.09%. Again it looks like they are running some DC fund options based on the links below -

Here again it has a long position too of a bit over 2%. Interestingly APG - the asset management arm of ABP, the big Dutch public sector fund - also has a big position. (I've just grabbed this from the FT this morning).

And when you dig into APG's holdings this is not the only big position in a UK stock. But that's for another day...

Thursday, 19 July 2018

Investors and labour - gaps, biases, conflicts

I've had a couple of interesting conversations this week about how a lot of investors (even those with some ESG credentials) actually view workers. So this is a bit of a splurge of thoughts.

A first over-arching point is that is seems like quite a few ESG people only want to talk about the extremes when it comes to the workplace. So, for example, when most investors think about 'labour standards' they are drawn to supply chain issues, particularly in developing countries. Here the issues are stark, and therefore very difficult to overlook even if you can't think of a good instrumental reason to act.

At the other end of the scale, people are quite comfortable talking about the importance of human capital management when it comes to "talent" - so, management and executives. Here investors are comfortable making the case for treating people with respect, paying them properly and addressing discrimination on grounds of gender, ethnicity and sexuality.

But it's the rest of us - those in the middle and lower, who are never going to be senior managers, or board members, but aren't subject to extreme exploitation in the supply chain - where investors don't seem motivated to act. You can see this in the attitude of investors and advisers to things like defined benefit pensions. Although highly beneficial to workers, to many investors they are a risk and cost that doesn't really deliver them any benefit. So they are hardly likely to get behind workers seeking to defend them.

And on the flip side, the 'meritocratic' focus on ensuring that boards are more representative can look elitist. Obviously I'm not arguing that boards should not become more diverse, but if your interest is injustice within companies I'm not sure that's where I would focus a lot of limited resources (the fact that it does get a lot of attention suggests that workplace justice is not a high priority for many investors).

A second related thing that I've noticed that investors frequently suggest, sometimes implicitly sometimes explicitly, that information from unions about workforce practices for the workers in the middle is biased, or not the whole story, or "political". Yet they often seem completely credulous about claims from management in the same companies.

Now, my colours are firmly nailed to mast here. But one thing I have learned working for and with unions over the years is that companies lie. And I mean outright lie. So I am frequently surprised by how willing some investors are to take at face value claims from companies that actually the issues that unions raise aren't significant, or maybe don't even really exist. This seems to me to be quite a deep-rooted bias (in a psychological sense). Possibly it's simply because if you like a company enough to have an overweight active position you're going to have a positive view of the management of it, and discount info that casts them in a negative light. But whatever the reason, it strikes me a spending some time on.

Which leads me onto a third area I increasingly think about - conflicts of interest. If we look at some of the companies where unions have sought to raise concerns, it seems to me pretty self-evident that if workers' complaints were addressed then there would be an increase in labour costs. How significant this impact would be would obviously depend on their margins, but it's not cost-free.

If, as highlighted above, investors struggle to develop and/or believe an instrumental reason for promoting this change (eg it will pay for itself due to reduced turnover/improved productivity) then what exactly should they be doing? In some cases it might be better for workers if they remain uninvolved. Again, more thought is needed.

I do worry that 'responsible investment' has in general glossed over these issues. There has been an unthinking assumption that greater shareholder powers, greater shareholder engagement and "mainstreaming" of ESG are all inherently good things. It's clearly more complicated than that.

Tuesday, 17 July 2018

Ryanair: just a bit of fun

I dug the stats out of the Ryanair annual reports when it used to disclose the split between direct hire and agency flight crew. The first graph has the real data, the second includes projected numbers for 2012-2017 if the direct hires stayed at the same level (in reality there will have been growth, so I'm just mucking around). That results in a 74% agency / 26% direct hire split by 2017. Which has the former too high I reckon, but it won't be miles off (it's about right for cabin crew, but high for pilots, so overall...).

The interesting thing for me is that Ryanair's heavy reliance on agency/indirect employment is actually relatively recent (the majority of Ryanair flight crew were direct hires within the last 10 years), and has grown significantly in recent years. So it has continued to push the barriers on labour practices even as it has grown, rather than these being small/cowboy operator practices that got it started but which might be phased out when it got to scale. (Though that might start to change now). Bear in mind too the funky stuff that has done with pilot 'self employment' in the past few years.

Thursday, 12 July 2018

Ryanair & employment-related disclosures

As a lot of people in my world know, there are a number of initiatives underway to try to improve disclosure by companies of information related to employment practices. This is in response to blow-ups at a number of companies that have had controversial labour practices, such as heavy reliance on contingent/indirect employment.

So it may come as a bit of a surprise that one company that has faced a lot of scrutiny, and more recently some significant problems, as a result of its employment practices actually discloses a bit less data that some investors used to find useful than it used to.

Here is an excerpt from Ryanair's 2011 annual report:

Here is the same section from Ryanair's 2012 annual report:

And here is the same from the 2017 annual report:

Ryanair seems to have stopped splitting out costs for directly and indirectly employed staff from 2013. Although splitting out the costs doesn't tell you a lot more, it does make clear how important the use of indirect employment is to the company. And anyone who follows it closely will know that this is one of the major issues that Ryanair's contract workforce dislike.

It might be something that investors that engage with the company want to have a look at.

Hat-tip: JB

Wednesday, 11 July 2018

"Open vs Closed"

If it's not obvious, let me be clear that I really hate the suggestion that the "real" divide in politics these days is "open" v "closed". In purely linguistic terms it is such an obviously loaded division - doors that are "closed" are bad, a business that has "closed" is dead, a book that is "closed" is unreadable and/or finished. No-one wants to be described as "closed" if the other option is "open", and I suspect everyone gets this on a very fundamental level. If you're read a bit about metaphors the use of spatial terms is a deep-rooted thing, and it's always pretty clear which is better/worse.

Add to this the fact that I am still yet to see advocates of the open/closed way off looking at the world describe themselves as "closed". They are always the open-minded, mobile ones. And I don't see much evidence people who align with "open" see anything to learn from the "closed". Rather the lumpen "closeds" need to be dragged kicking and screaming into the reality of a globalised world. I can't think this is going to end well.

Anyway, in this vein, I recently started reading an oldie by Zygmunt Bauman and it rang very true with me.
All of us are, willy-nilly, by design or by default, on the move. We are on the move even if, physically, we stay put: immobility is not a realistic option in a world of permanent change. And yet the effects of that new condition are radically unequal. Some of us become fully and truly 'global'; some are fixed in their 'locality' - a predicament neither pleasurable nor endurable in the world in which the 'globals' ["opens" eh?] set the tone and compose the rules of the life-game.
Being local in a globalised world is a sign of social deprivation and degradation....
An integral part of of the globalising process is progressive spatial segregation, separation and exclusion. Neo-tribal and fundamentalist tendencies, which reflect and articulate the experience of people on the receiving end of globalisation, are as much legitimate offspring of globalisation as the the widely acclaimed 'hybridisation' of top culture - the culture at the globalised top. A particular cause for worry is the progressive breakdown in communication between the increasingly global and extraterritorial elites and the ever more 'localised' rest.
And a bit I really connect with:
Among all [those] who have a say in the running of the company, only 'people who invest' - the shareholders - are in no way space-tied; they can buy any share at any stock exchange and through any broker, and the geographical nearness or distance of the company will be in all probability the least important consideration in their decision to buy or sell.
In principle there is nothing space-determined in the dispersion of the shareholders. They are the sole factor genuinely free from spatial determination. And it is to them and them only, that the company 'belongs'. [well, not really, but...] It is up to them therefore to move the company wherever they spy out or anticipate a chance of higher dividends, leaving to all others - locally bound as they are - the task of wound-licking, damage-repair and waste-disposal. Whoever is free to run away from locality, is free to run away from the consequences. These are the most important spoils of victorious space war.  

Sunday, 8 July 2018

Politico commentary

This (from this) is pretty good on the commentariat:
"[J]ournalists weren't consciously deciding the equilibrium. The journalists were writing 'serious' articles, i.e. articles about Alice and Bob rather than Carol. The equilibrium consisted of the journalists writing sports coverage of elections, where everything is viewed through the lens of a zero-sum competition for votes between Alice's team and Bob's team. Viewed through that lens, the journalists thought a gay marriage endorsement would be a blunder. And if you do something that enough people think is a political blunder, it is a political blunder. The journalists' sports coverage will describe you as an incompetent politician and primates instinctively want to ally with like winners. Which meant the equilibrium could have a sharp tip over point, without most of the actual population changing their minds sharply about gay marriage in that particular year. The support level went over a threshold where somebody tested the waters and got away it, and journalists began to suspect it wasn't a political blunder to support gay marriage, which let more politicians speak and get away with it, and then the change of belief about what was inside the Overton window snowballed." 
I think this process is pretty important currently with respect to Labour. I think a lot of the commentariat believed that Labour explicitly articulating more left-wing economic ideas was A Political Blunder, and because they think that it became A Political Blunder with very little reference to the views of the public.

Then came the exit poll on 8 June 2017, and everything changed. It turns out you can advocate a more left-wing economic programme and not get demolished in an election. In fact it turns out that a lot of the public - including Conservative-voting members of the public - like these policies. I doubt the public's views actually changed, but the commentariat's views of the public's views did change. Now articulating those views is not seen as A Political Blunder, in and of itself (though the commentariat by and large hasn't moved to embrace them). Or, in the language of the excerpt, views about what is inside the Overton window have changed.

Things have obviously moved on in the past year. Some political commentators seem to want to go back to pre-8 June 2017. But to publicly advocate, say, public ownership of utilities is no longer A Political Blunder. Indeed, to defend the current system might be seen by some as more politically risky.

This does make me think a lot about Expert Political Judgement (something I have personally lacked over the past 5 years!) and the idea that we ought to rate members on the commentariat on their track record of political predictions.

Wednesday, 4 July 2018

Just one more thing about hedge funds...

In the middle of the Melrose bid for GKN there was a point when the merger arb activity seemed to be falling back. Specifically, the total shorts in Melrose in the FCA's list started dropping (having been building up steadily up till that point). And one of the more active players Davidson Kempner wound down its positions - both long GKN and short Melrose.

If you look at the historical short positions  in Melrose disclosed by the FCA (and collated very helpfully by the Shorttracker website) you can see the drop in shorting activity kick in at around halfway through March (I've hung the cursor on 15th March in the screenshot).

Why? Well, that was the point when Airbus came out publicly warning that it would find it hard to work with Melrose in the event of a successful takeover (FT story in the links is from 14th March). This was a very significant intervention, and obviously some hedge funds blinked.

Then, about a week later, Elliott Advisors came out very strongly in support of the bid (despite not being a shareholder and therefore not party to it!) and the total shorts started creeping steadily back up.

The lesson here is that interventions like the Airbus statement really do make a difference. In this case it negatively affected the views of presumably pretty sophisticated market participants of the likelihood of the bid succeeding, albeit only temporarily. Something to remember next time we come up against a bid we don't like...

NEX Group takeover & derivatives

Another takeover, another example of hedge funds piling in using derivatives. In this case its NEX Group, which is being taken over by US-listed CME Group. It's not hostile so it went to a vote and got a strong thumbs up.

I find this one interesting as it's another example of hedge funds running the merger arbitrage trade, albeit in uncontested circumstances. This is classic 'picking up pennies in front of a steamroller' behaviour. They are taking a punt on being to skim a bit off expected price movements (upwards in the target, downwards in the bidder). As far as I can see no-one claims there is any kind of market inefficiency that this behaviour is ironing out.

Anyhow, here's who is in the mix using derivatives, based on a quick trawl of rule 8.3 disclosures.

York Capital  (also active in GKN/Melrose) with 4.63%

Magnetar Capital - 1.2%

Carlson Capital - 1.95%

Omni Partners - 1.13%

TIG Partners - 1.27%

UBS O' Connor - 1.02%

PSquared - 1.9%

Sand Grove - 1.61%

Alpine Associates - 1.5%

Tuesday, 3 July 2018

Ownership and control

Here's something I wrote for work...

Ownership and control

If you’re a delivery driver whose movements are monitored remotely, or doing gig work through a platform like Uber or Deliveroo, you’re already seeing the impact of technology on work. Millions of other transport workers will have the same experience in the years ahead.

Too often, rather than liberating workers from drudgery, technology is something that is forced on them, undermining their occupational status and reducing their freedom at work. As a result technology often looks like a weapon to used against workers, rather than a tool to assist them.
Some far-sighted thinkers saw this coming. For example, writing in the 1970s, Harry Braverman, warned that technology was used to disempower and deskill workers:
The mass of humanity is subjected to the labour process for the purposes of those who control it rather than for any general purposes of “humanity” as such… Machinery comes into the world not as the servant of “humanity”, but as the instrument of those to whom the accumulation of capital gives the ownership of machines… [I]n addition to its technical function of increasing the productivity of labour — which would be the mark of machinery under any social system — machinery also has in the capitalist system the function of divesting the mass of workers of their control over their own labour.
Writing a decade earlier, and coming from a different political perspective, the economist James Meade offered a bleak view of future society if action was not taken to address some of the trends he saw in market economies:
There would be a limited number of exceedingly wealthy property owners; the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would thus be depressed; there would have to be a large expansion of the production of the labour-intensive goods and services which were in demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserized proletariat and of butlers, footmen, kitchen maids, and other hangers-on.
What both of them believed was that the problem was not technology itself, but rather who owned and controlled it, and therefore who benefitted from its rewards. Unless these questions were addressed, workers would suffer. If we fast forward to the 21st century, the world of the millionaire “tech bros”, Uber drivers and platform working, the views of Meade and Braverman look very prescient. But could the labour movement address these problems by focusing on the ownership of technology?

The question of ownership addresses two related issues of critical importance to workers — power and reward. It is not surprising that labour’s opponents defend current ownership models, since they put both power in the hands of management and ensure that they and their allies derive the most reward. In contrast, if we could expand worker ownership we could both increase our power at work and ensure that wealth is shared more equally at the point of production.

The terrain may be more favourable for this type of change than in the past. For many technology businesses, capital may be less important to them than labour. The dominant organisational model in business, the joint stock corporation, developed in an era of capital intensive businesses. For example, this was a highly useful organisational form during the construction of railways. Given the risk shouldered by providers of capital (shareholders), the model awarded them significant power within the firm.

But many public companies are now net contributors of capital to shareholders, as share buybacks increase. And technology firms in particular can be far less capital intensive.
In addition, the individual shareholders of the 19th century, placing their capital in a handful of businesses, have long since been supplanted by institutional investors managing billions or trillions of dollars’ worth of capital. These investors reduce their risk by investing across hundreds of companies, meaning that the failure of any one does not adversely affect them. In contrast workers bear “firm specific” risk — most of us only work for one business, and if it goes under we lose our job. Meanwhile for companies it is “human capital” that matters most.

So the current model seems to have its priorities upside down — it awards power to the party that bears less risk, and makes little contribution, but denies it to those without whom the business cannot function. Again this point has been identified by past thinkers, and even conservatives have sometimes acknowledged it. For example, the point was made by the Tory peer Lord Eustace in a speech in 1944:
The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise — the association of shareholder-creditors and directors — is incapable of production or distribution and is not expected by the law to perform those functions. We have to give law to the real association, and to withdraw meaningless privilege from the imaginary one.
This could be addressed by rewriting company law, as Eustace envisaged, or it could be achieved through an expansion of worker ownership.

For example, what might Uber or Deliveroo look like if they were owned by those that work for the business? Clearly drivers or riders would have a direct interest in ensuring the apps that allocate jobs work well for customers. But equally, they would want to eliminate or alter features that are exploitive or invasive. At the same time, workers would directly benefit from the success of the company, rather than the seeing the fruits of their labour syphoned off by external investors.

Change could even be achieved within the current model. For example, public companies could be required to issue shares to worker funds which would enable them to build up a controlling ownership position. This need not be complete ownership of the equity, but having a sizeable position (say, upwards of 30% in each company) would mean that the workers in the company receive both a fair share of the wealth they create and exercise meaningful control. In countries where workers do not currently have representation in corporate governance, this ownership would also justify board membership or similar participation structures. In addition, having a worker ownership fund of this size, aligned to the business, would provide a defence against hedge funds and other speculators who might seek to take over or break up the firm.

Alternatively this approach could be scaled up, so that sectoral funds or even a national fund could hold the equity. This was broadly what Meade advocated — the creation of a national Citizens’ Trust — and a similar idea has recently been floated by the Institute for Public Policy Research. An advantage here would be that workers would be able to diversify their financial risk, although on the downside control might shift away from workers in a specific business to the fund. Nonetheless, the fact that think tanks are now looking at ownership again, suggests this is an idea whose time has come.

Monday, 2 July 2018

More hedge fund shenanigans

1. I had a quick Google to see if there are any more funds that use the generic blurb I've found in dozens of cases to avoid compliance with the Stewardship Code. And... yes there are.

Curam Capital Management:

Curam Capital Management LLP (the "Firm") provides investment management services to a Fund that pursues a global equity approach with a focus on the healthcare sector. 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

Cryder Capital

The Firm provides investment management services to a Fund (“the Fund”) that pursues an investment strategy 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.

Tencendur Capital

When the Firm does 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

2. In addition to Inmarsat, there is also some interesting hedge fund action around the Sky takeover. Again we can see some funds piling in using derivatives to build positions of influence.

So there's Pentwater Capital with 1.92% in derivatives.

UBS O' Connor (their hedge fund business) with 1.17%.

Our old mates Elliott with 3.73%.

Farallon Capital - 1.87%

Canyon Capital - 1.8%

And another old fave Davidson Kempner with 2.16%

That's about 12.5% just on a quick trawl. Worth keeping an eye on.

Saturday, 30 June 2018

Politicised investment decisions

If you've spent any time trying to get pension funds to take account of labour issues, or any other social or environmental issue for that matter, at some stage you will have been on the receiving end of the need not to politicise investment decisions. Returns are paramount, and to focus on anything else would be a breach of fiduciary duty, absolutely not in beneficiaries' interests.

What then are we to make of the recent Court of Appeal decision that on the face of it upholds the Government's madcap scheme to require the Local Government Pension Scheme to invest in line with UK foreign policy? This is about as explicit as you can get in terms of political interference in investment decision-making.

The background to this is an attempt by the government to stop schemes from disinvesting from assets linked to Israel. Whatever your views on Palestine, this should trouble you. First, even if you agreed with the politics behind it (which I don't) it would be a planet-sized sledgehammer to crack a nut. There are very few schemes that have even considered disinvestment.

Second, as anyone who has looked at fiduciary duty will tell you, actually schemes are suppose to have quite a lot of freedom of movement provided that they approach their decisions in the right way. This intervention essentially goes in the other direction in seeking to instruct pension funds what decisions they should reach. What if investments linked to Israel, or any other country that we favour in foreign policy, perform badly? The government's approach seems to stray into taking certain decisions without considering beneficiary interest. I cannot see that surviving another well-argued legal challenge.

There's a slightly made element to it too. Assuming the current government wins the argument, what happens if it loses an election to a Corbyn-led government with a different policy in relation to Israel, including support for boycotts? What would investing in line with foreign policy look like then?

The whole idea deserves to be challenged, as I am sure it will be again.

Wednesday, 27 June 2018

Chantal Mouffe again

I don't agree with everything she says, but a lot of it is on the money:
Every order is the temporary and precarious articulation of contingent practices. The frontier between the social and the political is essentially unstable and requires constant displacements and renegotiations between social agents. Things could always be otherwise and therefore every order is predicated on the exclusion of other possibilities. It is in that sense that it can be called 'political' since it is the expression of a particular structure of power relations. Power is constitutive of the social because the social could not exist without the social relations which give it shape. What is at a given moment considered as the 'natural' order - jointly with the 'common sense' which accompanies it - is the result of sedimented practices; it is never the manifestation of a deeper objectivity exterior to the practices that bring it into being.
Contrary to the various liberal models, the agonistic approach that I am advocating acknowledges that society is always politically instituted and never forgets that the terrain in which hegemonic interventions take place is always the outcome of previous hegemonic practices and that it is never a neutral one. This is why it denies the possibility of a non-adversarial democratic politics and criticises those who, by ignoring the dimension of 'the political', reduce politics to a set of supposedly technical moves and neutral procedures. 

Tuesday, 26 June 2018

A defence of capital strategies as a tactic for unions

There have been a few bits and pieces recently that I have read that critique capital strategies from a labour movement perspective. I think these are generally helpful, and having worked in this field for a long time, I share some of the critical views expressed.

Nonetheless at points I think some critics end up articulating a position of "radical inaction" - essentially that it is better not to get involved with pension funds, and we should so other things. I think this would be a mistake, so here are a few points I would make in return.

1. Most obviously, we do not have to choose between organising and capital strategies and other campaigning tactics. Some critics of capital strategies work appear to believe that this is seen as a shortcut to/substitution for organising. I can only speak from my own experience, but most capital strategy work I have been involved in has developed where a) there is a live organising drive and b) where the union(s) at the sharp edge want to engage investors.

This work has to be linked to organising to have any value. In my experience, in practice capital strategies get used where there is live organising and the company responds in a hostile fashion.

2. Almost as obviously, someone will employ capital strategies utilising workers' retirement savings, even if unions don't. Most frequently, our pension funds delegate control to asset managers who will then utilise the power that different corporate law/governance regimes give them to pursue what to them seem to be reasonable objectives. In plenty of companies I've been involved with - Ryanair, Sports Direct etc - there was already some degree of investor interaction with the companies underway before unions got involved.

The default / status quo in terms of use of our capital in shareholder/investor-company relationships is not passivity. It is control by financial market intermediaries, frequently acting against labour's interests. You might argue that there is an opportunity cost to undertaking workers capital based work, and I'll listen to that point with an open mind. But in return I will argue that there is a risk in inaction.

3. Some union people don't want capital strategies to work at the theoretical level. I think we should just be honest about this. On one level I get this. It would be a lot easier to conclude that we compromise ourselves too much and achieve too little by dirtying our hands undertaking work in financial markets. I would also prefer a system in which labour's voice was significantly stronger than capital's in corporate governance - even if it's workers' capital.

But we aren't starting from where I would like, so I feel a responsibility to look at the reality: point 2 above. Pretty much every week I get an email from a union somewhere in the world along the lines of "we have a problem with employer X, can you help us talk to investor Y?" I feel compelled to try and help them as long as these requests keep coming. I am very happy to discuss why we need a different pension system and/or corporate governance regime, and I often agree with the ideas that people come up with. But that does not help in the short term.

4. I don't believe that undertaking this work reinforces existing governance structures/priorities as some claim. I'm looking at things from a primarily European perspective, but in my experience we are more than capable of both utilising capital strategies within the current framework and trying to change that framework. I also think some Left critics over-estimate how significant policy interventions that unions have taken in some markets are. That said, as I've blogged before, I would not advocate any extension in shareholder rights in the UK, given that a number of institutional shareholders have lobbied against worker voice in corporate governance.

5. It's a tactic, that's all. I don't subscribe to any larger theory about what the existence of workers' pension funds mean in terms of "ownership". Here I agree with critics from the Left. But this does not mean that undertaking work amongst investors cannot be a useful tactic. It's a tool we use to campaign with, and that's enough in my opinion.

Wednesday, 20 June 2018

Votes on Persimmon remuneration report

I'm not sure anyone has looked at individual investor voting decisions on the remuneration report at Persimmon's AGM back in April, so I thought I'd take a look. As people may remember, there was a large vote against the rem report, and abstentions and oppose votes were far greater than those for. But on a straight for/oppose split the company "won" roughly 52% to 48% (full results here).

I actually can't find that many disclosed voted as a number of managers disclose by quarter, and we're still in Q2. But of the ones I can find there are some interesting ones.

In the US CalPERS and CalSTRS both opposed.

As did NBIM, the investment arm of the Norwegian sovereign wealth fund

But in the Netherlands ABP/APG and PGGM both abstained

Amongst asset managers I can see that BMO, LGIM and Janus Henderson vote for

Whereas Schroders and Robeco opposed

And Natixis abstained

I'll post up more as I find them.

Wednesday, 13 June 2018

Chantal Mouffe on centrism and right-wing populism

This is from On The Political, published in 2005:
In a context where the dominant discourse proclaims there is no alternative to the current neo-liberal form of globalisation and that we should accept its dictats, it is not surprising that a growing number of people are listening to those who proclaim that alternatives do exist and that they will give back to the people the power to decide. When democratic politics has lost its capacity to mobilize people around distinct political projects and when it limits itself to securing the necessary conditions for the smooth working of the market, the conditions are ripe for political demagogues to articulate popular frustration.
For some time the case of Britain seemed to provide a counter-example to such an evolution; however the recent success of the [UK] Independence Party in the 2004 European elections suggests that things may be changing. It is of course too early to predict the fate of such a party, and the British electoral system certainly does [not] facilitate the rise third parties. But the dramatic surge in the share of votes needs to be taken seriously. It is undeniable that all the conditions nowadays exist in Britain for a right-wing populist party to exploit the popular frustration.

Unions and public policy

Just a few links to some recent bits and pieces related to rebuilding unions. I am hopeful that the public policy discussion is moving on from simply observing that the decline in union density is correlated with rising inequality (and related issues), to thinking about what we might do to reverse it.

1. Most significant is this IPPR report which has all kinds of ideas about how we can help unions to be a significant force at work again.

2. An interesting economics blog again concluding that stronger unions would be good thing.

3. Stick with me... a piece by Nick Denys from Tory Workers on a Modern Employment Act in this CPS (!) pamphlet. I flag this up to show that there are thinking Tories who do think unions are a good thing (though they obviously don't like the Labour link). There's not a load on offer here, but I think it's interesting that something like this has made it into print.

Another snippet on Inmarsat takeover and hedge funds

Just to keep this updated, there are a lot of regulatory disclosures being fired out by Inmarsat now. So I'm just keeping track of the hedge fund related ones.

Marshall Wace, which is very active on the short side in the UK, now has a 2.38% long position using derivatives.

Melqart Asset Management, one of the firms that was active around GKN/Melrose, has a 1.17% long position, again using derivatives.

UPDATE: Citadel now has a 1.95% long position, again using derivatives, plus 0.16% short.

Plus Pelham has 1.82% long derivative position I blogged on Monday. So around 7% in long derivative positions held by hedge funds in total so far, just in terms of what we can see (I'm not sure what the disclosure threshold is). I expect this will rise. Presumably these positions are offset by a counter party bank holding actual Inmarsat shares, so we might see them start cropping up on the register as major shareholders as was the case with GKN.

Also worth clocking that some more funds have outstanding short positions in Inmarsat. In addition to the names on the FCA list, regulatory disclosures show that Renaissance Technologies and Millennium Investment Management both have short positions of just under 0.5%.

Monday, 11 June 2018

Inmarsat: in come the hedge funds

At the back end of last week the UK-listed telecoms business Inmarsat revealed that it has been approached by US-listed Echostar Corporation about a potential takeover, which it knocked back.

As a result of the offer, a different regulatory disclosure regime kicks in, which means that we can see all sorts of detail on which investors are doing what. And, as you might expect, we can already see some hedge funds piling in with fairly sizeable positions.

For example, Marshall Wace:

And Pelham:

As you can see from the disclosures, the long positions these funds have taken have been built up using derivatives rather than by buying shares. This shouldn't be any surprise to anyone who followed the detail of the GKN/Melrose bid. And obviously this will be a bloc of investors that will want Inmarsat to be taken over.

It also means that we should expect to see banks emerge as major shareholders on the Inmarsat shareholder register as they build up holdings as counterparts to these derivative positions. Plus we will probably see a notable short position in Echostar emerge.

Finally, here is a quick look at who the major shareholders (1%+) at the moment, data from Capital IQ.

UPDATE: for completeness it's worth noting that a few investors are actually short Inmarsat. So worth keeping an eye on this too. Latest from FCA disclosure below.

Sunday, 10 June 2018

Pay ratios - an important step forward

Tomorrow will see the introduction of regulations that will make it mandatory for larger listed companied to disclose the ratio between chief executive salaries and the average pay for employees of the same firm. Although the UK has actually been beaten to this reform by the US of all places, this represents an important development for a number of reasons.

First, it is a shift away from the centrality of shareholder interests. I am unclear about the extent to which Conservative policy wonks are aware of this (or care either way) but if you've followed this debate you should know what I mean.

I don't think many people seriously believe that the disclosure of ratios will lead to the creation of greater returns for shareholders. Nor is the policy aimed at the issue which most shareholders have focused on - tying executive reward to shareholder returns. Rather this policy is all about intra-firm inequality and relative reward. Some shareholders (asset managers) care about these things, many do not. But essentially their support or opposition to the policy is taken to be far less important than would have been the case 5 years ago.

We can see the shift in focus too in the expected revised requirement for demonstrating how the range of stakeholder interests are taken into account by directors. Employees are once again highlighted as an important group. I know for many people on the Left these will seem like very minor tweaks but they do matter.

And that's partly because, secondly, these reforms represent a defeat for the corporate governance mainstream. Most people in the microcosm I inhabit still adhere to the 1990s vintage view of the world, and the policies that flow from it. This is built around disclosure and shareholder empowerment. In that cluster of policies pay ratios make no sense. And it was only a few years ago that major shareholders and their representatives were publicly opposed to pay ratio disclosure. Many still believe the whole exercise is pointless and/or an illegitimate intervention in the shareholder-company relationship. However, some have swung to support ratio disclosure, probably in part because they don't want to be too far out of line with the government, and this isn't a hill worth dying on. Nonetheless it is a defeat for the mainstream and a policy that comes very clearly from the Left is being put in practice by a Conservative government.

Which leads me on to the third reason why this policy is important - it has shifted the centre of gravity in terms of what is "reasonable" to ask for in this area. Again, it wasn't that long ago that arguing for disclosure of pay ratios was very much a left-wing position - and an aspirational one at that. Now that it is being put into practice pay ratios will shortly become the status quo. That means that on the Left we can now use this as a jumping off point for more radical policies. In my opinion we should not underestimate how important and influential having a measure of intra-firm inequality embedded into corporate disclosure will be in terms of shaping people's thinking about a) what matters in this field and b) what might be politically achievable.

It's taken a long time to get here, and there is a lot more to do. For instance we have to push on worker representation in corp gov too - the government lost its nerve, but the door has been left ajar. But the introduction of pay ratios is a win, end of. And it's the start of something.

Sunday, 3 June 2018

Keep your nose out of executive pay!

This is from the concluding paragraph of a recent academic paper on executive pay:
While the pay controversies fueling calls for regulation have touched on legitimate issues concerning executive compensation, the most vocal critics of CEO pay (such as members of labor unions, disgruntled workers and politicians) have been uninvited guests to the table who have had no real stake in the companies being managed and no real interest in creating wealth for company shareholders. Indeed, a substantial force motivating such uninvited critics is one of the least attractive aspects of human beings: jealousy and envy. 
I would recommend giving the paper a read as it has some interesting things to say about various attempts at executive pay reform. Two things in particular I did appreciate are the acknowledgement of the potential for *positive* unintended consequences from policy interventions, and of the fact that companies do try and find gaps in / ways around regulation.

But the above paragraph is indicative of why I have a lot of problems with some of the dominant ideas in corporate governance, and in the sub sector of executive pay.

Given that we know that in Actually Existing Capitalism when we say "shareholders" we really mean asset managers. (As a side note in this paper it is notable that union pension funds are highlighted as a group of activists, with the implication (as I read it) that they aren't really the right kind of shareholders.) As such I really struggle with the suggestion that union members and workers (they have to be prefaced with the pejorative 'disgruntled', obviously) are "uninvited guests" in discussions about the distribution of rewards within companies. And I think upside-down to suggest that the workers in a company have no real stake in the business compared to shareholders.

This conclusion also takes as read that creating wealth for shareholders is the function of business (rather than, say, one of its outcomes) which is highly contestable. More interestingly, again we see a mainstream corporate governance paper suggesting that different stakeholder interests - those of union members and other workers, and those of shareholders - are potentially in conflict. The implication in this paper is that in such a scenario the interests of shareholders are justified and therefore should win out. I would say these are far from settled issues now.

What about the claim that critics are substantially driven by "jealousy and envy"? I would suggest that it's more about conceptions of fairness, which seems to be form of judgement that humans have evolved. I think that people are more concerned that rewards are determined fairly, than that they necessarily benefit personally. The sense you get from ordinary punters is less "I want some of that" than "how the hell do they get away with this?". But if jealousy/envy is apparently so important, shouldn't we expect to see this in the demands made by executives in respect of their remuneration, and perhaps we should start there?

Finally, in my opinion the tone of the paper, exemplified by the conclusion, is part of the problem that the 1990s corporate governance model has. In this world, executive pay is not a political issue, it is a technocratic one that, if it cannot be 'solved', can at least be defused. There is an array of views that are packaged into this perspective, such as that pay is a private matter between companies and shareholders; the public is misinformed/misled; politicians are meddlers who usually make mistakes; and concern about pay levels (rather than structure) is misplaced. As such it is quite a natural for people who hold these views to suggest that only a select group of people are legitimately allowed to comment about executive pay. Personally I am surprised otherwise smart people cannot grasp how utterly elitist all this sounds.