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. 

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.

Greenvale Capital:

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. 

Atlas Square:

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....

Gladstone Capital

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. 

Aisling Capital:

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."