Labour And Capital

Coalition wants to see employee directors on boards?

2012-02-01T21:44:00.006Z

There was an interesting exchange in the Lords yesterday on executive pay, and specifically how to ensure employees' views are taken into account. From the excerpt below from Baroness Wilcox it appears that the Coalition wants to see employees represented on boards, but can't just appoint them if they aren't directors. So the solution, presumably, is employee directors....? Not entirely sure this is actually Coalition policy.

Baroness Wilcox: The Secretary of State gave a very broad, sweeping statement last week, as my noble friend has already mentioned, which he will be speaking to more and more as the weeks go on. Putting employees on board committees is something that obviously everybody would like to see happen. The closed shop of boards and board committees needs to change and we are taking measures to promote diversity. However, as the Secretary of State made clear last week, bringing people on to board committees who are not also company directors, with the associate responsibilities, is not the way forward.

Timing is everything, part 2

2012-01-31T21:54:00.005Z

There are some interesting new pieces of written evidence on the DCMS committee website, published today. Following on from the Linklaters email evidence (which suggests James Murdoch knew more than he has claimed) submitted before xmas, the committee has sought to determine exactly when the key June 2008 emails were discovered. (By lucky chance for Murdoch they were submitted to the committee after he faced a shareholder vote at BSkyB).

Anyhow, Linklaters has submitted a not entirely straightforward answer suggesting that a junior reviewer first discovered the email trail "on or about 18 November 2011". The letter also says that the significance of the email should have been recognised immediately. Instead, only when a second reviewer spotted the email was the alarm sounded, on 7th December.

Ok, but then explain how the Daily Mail was able to write a story on 12 November about the discovery of emails damaging James Murdoch? And how did a source close to Murdoch Snr know enough to tell Andrew Neil they were potentially devastating to James at least three weeks before Linklaters realised their importance? Either there are other emails we haven't seen yet, or it looks like someone is telling porkies.

Labour/RBS/bonuses

2012-01-31T07:01:00.001Z

There's some interesting detail in this piece in The Guardian, especially views of Chuka Umunna and Paul Myners. Being someone who is a Labour supporter, interested in corp gov and interested in language/communications I think there are a couple of shifts in message going on.

For example Labour is starting to talk (as Chuka has done) about "rewards for failure and excessive pay", ie there are different problems here. The Tories in particular want to try and hold the debate back to rewards for failure and conflate that with excessive pay. It's important that Labour makes the difference explicit as the Tories are uncomfortable with the notion that top pay might represent (to a greater or lesser extent) rent seeking rather than an optimal market outcome.

Also the language on bonuses seems to be becoming a bit more explicit - ie Rachel Reeves using the line that bonuses are something that should be awarded for really exceptional performance, for everything else you get your salary. This is potentially important as any fule no that the explosion in performance-related reward is behind much of the growth in top pay. I hope we hear more on this. Most working people are expected to turn and do their job for their salary, they can't hope for multiples of salary to do it better. So performance pay of this size is unique to certain bits of the economy.

RBS & power

2012-01-30T13:00:00.007Z

Well, my last post was overtaken by events in a couple of hours, so just a quick update.

I think the biggest issue sitting behind this is the question of who holds power. When you boil down most of the arguments against the Government taking action on Hester's bonus they seem to reduce to "we can't act" or "we shouldn't act".

In the first case, we can't act because even a small 'win' will inevitably be offset by a large 'loss' - notice the desperation to see some share price impact this morning. More generally I'm starting to think a few people on the Left have developed a sort of Stockholm Syndrome in relation to the City. They are so used to being battered down by the argument that you take the City on at your peril - that the precious talent cannot be challenged or it will leave - that they can't believe that you can actually win a battle of wills. I think some people might even be relieved to see Stephen Hester go, just to confirm their belief that you can't really win.

In the second case ("we shouldn't act"), it's more political. A view held (predominantly) by the right-of-centre is that we have no business meddling in any case. If you want the proceeds of wealth generation by the private sector then business must be left unfettered. At the extreme end intervening to block the award will be characterised as an affront to liberty, a small step on the path to totalitarianism.

The thing is, the politicians clearly believe that the public don't have time for either of those arguments at present. There is a sense that the public want to see the bankers put in their place, they do not want to see the Government give in to threats. In the case of RBS, overlapping both the City and politics, this pressure is particularly sharp. The implicit question is 'who is in charge here?'. And the Government, belatedly and reluctantly, has given an answer.

The battle of the bonus

2012-01-29T19:46:00.002Z

The argument about Stephen Hester's share award has been going on for the best part of a week now. Whilst many people will, with some justification, consider that one person's remuneration is being given far too much attention there are important issues underlying the argument.

First up, let's be fair to the Government. This was always going to be a very difficult issue. It is clearly in everyone's interest that RBS is run by a good team and turned around as quickly as possible. Should the Government apply political considerations even if this meant it might damage the bank? It was always, to steal from Galbraith, a choice between the unpalatable and the disastrous, as most political decisions are. The thing is it's also often not clear which is which.

But the Government has not covered itself in glory through its actions. For one it has changed its line on Hester's award several times. First up the implication was cleary that Cameron wanted a bonus of less than £1m. Coincidentally the share award RBS hit on came in at just under that level. The line shifted though. Some in the Government (Nick Clegg for example) tried to deny that they had any choice, and that there was some kind of contractual obligation to make an award. This was blamed on Labour. This is patently dishonest for several reasons. Directors' contracts typically say you are entitled to participate in a bonus scheme, not that you are entitled to a bonus. In addition, if the bonus was a contractual obligation it is a massive coincidence that the award came in under Cameron's red line. Finally, if the contracts were a problem, why not try and unpick them? This Government has been in power for almost a third of a term. Or alternatively why not vote against the RBS remuneration report last year? UKFI did it in 2009 remember.

Latterly the line has shifted again. Today IDS acknowledged that the contract left it up to the board to decide what to do. Similarly the PM's spokesman has been quoted in a few places admitting that there is no contractual obligation. Now the argument, made by Danny Alexander and IDS, is that whilst the Government could veto the bonus to do so would risk the loss of talent that would in turn damage company. This is more honest, but does of course raise the question of just who is charge - the Government or the bankers. (You might even pose it as 'who governs?').

One thing the Government has not really tried to do is defend the bonus on its own terms - that Hester hit some targets and as such he was perfectly entitled to the award. This is important, because from one perspective that is a valid argument. In corporate governance terms the award isn't that bad. Hester got was offered certain rewards on certain conditions which he met. In fact this is a share award, not a cash bonus, so it achieves 'alignment'. What's the problem? That the Government doesn't try this argument demonstrates the awareness that this goes beyond governance. They know that the public don't buy the argument that a public sector employee (particularly one running a largely nationalised bank) deserves a £1m bonus on top of an already large salary. It is just too easy to make the leap to 'Schools n hospitals' and 'how many nurses would that buy us'?

Clearly the Government recognises that defending the award in terms of being in the interests of the state as shareholder doesn't work well with the public. This is probably because of the context - public sector pay freeze, job losses, 'we're all in this together', possible 'double dip' etc). Hence the overall impression is that the Government would ideally like it if Hester didn't take the award, and would really like it to not be made, but it feels powerless to act. It looks a bit weak, but presumably the Government considers that it would be 'disastrous' to try and tough it out.

The short-term effect of this is that the Government will take a lot of flak. But the RBS case should also make it pretty clear what the limitations are of shareholder engagement when dealing with executive reward in sensitive situations. If it is too difficult for the Prime Minister, with over three quarters of the ownership of RBS in his pocket, to dictate terms to a bank board, then don't expect those with a more traditional (ie dispersed) ownership structure to feel much compulsion to fall into line. This is especially so when most mainstream shareholders don't really buy the argument that the pay and conditions of employees within the business, let alone in the economy at large, are relevant when determining executive remuneration.

So the RBS case demonstrates the problem of conflating mainstream corporate governance reform with action on top pay generally. They are not the same thing. What might be acceptable to shareholders may not be acceptable to the wider public. In the case of RBS the difference is made much sharper because the public own the bank in large part. But same problem is likely to persist at PLCs more generally. The exec pay reforms floated by Vince Cable are good, in corporate governance terms, but they are not likely to tackle the pay gap between boardroom and shopfloor. Which would be fine, had the Prime Minister not sort to portray them as part of a 'responsible capitalism' crusade.

Tough choices

2012-01-28T23:40:00.002Z

From Tony Judt's Ill Fares The Land:

When imposing welfare cuts on the poor... legislators in the US and UK alike have taken a singular pride in the 'hard choices' they have had to make.

The poor vote in much smaller numbers than anyone else. So there is little political risk in penalising them: just how 'hard' are such choices? These days we take pride in being tough enough to inflict pain on others. If an older usage were still in force, whereby being tough consisted of enduring pain rather than imposing it on others, we should perhaps think twice before so callously valuing efficiency over compassion.

James Murdoch / hacking round-up

2012-01-28T15:30:00.003Z

Anyone who thought that the big events in the hacking scandal were behind us has probably had a shock in the past week or so.

Yesterday saw GSK announce that James Murdoch won't be standing for re-election at the company's forthcoming AGM. The official line is that this is because his move to the US means he needs to focus attention elsewhere. Maybe, but it's worth noting that just before Xmas the CtW Investment Group (US union shareholder activists) wrote to the company saying he should come off the board. It appears other investors may have queried his position there too.

This morning has seen a string of arrests as part of Operation Elveden. This is the police investigation looking into illegal payments to police. The Telegraph names the people arrested here, and, most importantly, the journos involved are current and former employees of The Sun. Notably one of those named worked closely with Rebekah Brooks. Those interested in this issue might also want to take a look at what the current Sun editor told the Leveson Inquiry about whether any illegal payments had been made to police.

Going back to last week, and there have, of course, been some settlements relating to phone-hacking. Again there are some important details in the mix. First, the claimants alleged that directors at NGN (the bit of News Intl that published NoTW) were aware of illegal activity, misled investigators and destroyed evidence. Secondly, there was an important allegation relating to email hacking (Harold Shipman's sun). (Separately, again in evidence to Leveson, it has been admitted that in one case The Times ran a story that was stood up by hacking someone's email account). As many people will know, the gossip is that computer hacking could be story of 2012, so these could be the first chinks in News Corp's armour on this front.

Looking ahead, obviously there is a lot of focus on the DCMS committee report. It would be interesting to know whether the pre-xmas email evidence relating to James Murdoch's knowledge has affected opinion on the committee. Also, it's worth remembering that Murdoch was asked specifically (by Tom Watson I think) whether he was aware of any allegations of computer hacking. He said no. So when did News Corp become aware of the claims relating to Shipman and the case involving The Times?

Finally, obviously GSK wasn't the only non-family business where James Murdoch is a director. He is also on the Sotheby's board. Expect to see more attention focused there in the coming months, not least, no doubt, by the US unions.

Performance-related pay

2012-01-27T08:16:00.002Z

Richard Lambert, former head of the CBI, highlights research saying it's basically a waste of time -

One answer comes in the latest Harvard Business Review in an article by two professors at Warwick Business School (full disclosure: I am chancellor of Warwick University). They argue that performance pay is both ineffective and distracting, and can encourage executives to take company-killing risks.
Managers waste energy by trying to manipulate the performance criteria in their favour, and neglect other important tasks by focusing their efforts on those activities that will trigger the pay-off, according to the article.

The research also shows that humans are not only motivated by financial gain, and the authors argue the case for non-material incentives – such as awards and other forms of recognition – as a way of strengthening employee loyalty and getting the business humming. They conclude that although variable pay for performance may seem attractive in theory, it creates more problems than it solves.

That 75% threshold - a few quick points

2012-01-25T13:30:00.004Z

1. There is already pushback on it, have a look at Lombard and Lex in the FT today. It is, as it stands, probably the most radical proposal in Vince's statement (in the sense that it is likely to actually bite because less companies will pass). As such it is also the one against there will be the most lobbying (though lawyers will no doubt start on contractual stuff soon!). So the progress of this idea might be a signal of how much appetite there is to pursue reform in the Coalition (and I assume Vince wanted to be more radical).

2. One point in favour that could be made is that it would strengthen the hand of minority shareholders where there is a controlling shareholder. If everything stayed the same in terms of voting behaviour, Xstrata would not have passed its remuneration report (I know it won't be the same vote, but...) last year. Or in 2010. Or in 2009.

3. As I flagged up previously, the flipside is that given the increasing amount of overseas ownership of UK shares it could be the cases that a UK PLC could lose a pay vote as a result on non-UK votes. To firm this one up, I can't spot a single UK institution that voted against Hammerson last year when it wanted authority to call meetings on short notice. That vote required 75% in favour too, and I'm pretty certain it was non-UK investors that defeated it (remember Ontario Teachers owns about 11%). One to watch.

4. Again I've made this point before, but if the principle is conceded that you need 75% to pass a pay resolution, why only require 50% for director elections, or acquisitions? So there is a decent 'slippery slope' argument against (for!) such a change.

Remuneration reports and employee pay

2012-01-24T21:18:00.006Z

One element of the announcements about exec pay is a requirement on companies to explain how they have "taken account of employee pay when they set board pay". Sounds OK doesn't it?

Actually Labour already tried to do something here. Five years ago, in a DTI (remember that?!) consultation on the Companies Act, the following question was asked:

Do you agree that companies need to report more effectively on the way in which they take pay and employment conditions elsewhere in the group into account in deciding directors’ remuneration? If so, how do you think this could be done?

From memory there was a pretty negative reaction, and a further round of consultation on a very minor tweak (there's a written statement here). In the end I think there was a tweak to the language to the effect that companies are technically required to state "how" they take employee pay and conditions into account. I think we can safely say the impact was... err... limited.

Two snippets

2012-01-24T21:14:00.003Z

1. BIS statement on executive pay is now available here. Vince Cable's speech (which is quite good) is here.
2. Cairn statement on its decision to pull that controversial share award.

BIS proposals on exec pay - UPDATED

2012-01-24T07:16:00.000Z

Should be revealed this afternoon apparently. Will blog when available....

The BIS summary of responses to the consultation is here. Still no sign of the actual proposals tho, so here' are my brief notes from yesterday's session in Parliament

Transparency

Secondary legislation later this year to split rem reports into two – a forward looking bit and a bit on implementation

The forward-looking bit will require an explanation of metrics used, any comparison with employee earnings used and how views of employees are taken into account (suggests info and consult regs could be used for this).

The backward-looking bit will require a simple single-figure disclosure for each director, how rewards relate to performance and set out the distribution of pay vs divi v reinvestment etc

NB – no requirement to publish pay ratios.

Shareholder powers

There will be further consultation on shareholder powers, but looking at a binding vote on future pay policy, also a binding vote on notice periods greater than a year.

Will also look at whether a higher threshold – ie 75% - should be introduced.

Other bits

Wants to see greater diversity on rem comms, but not going for employee reps. Will look at exec directors sitting on rem comms.

Wants greater transparency on pay consultants and their fees.

Corp Gov Code to say that all companies (might be FTSE350???) should introduce clawback.

The 75% solution

2012-01-19T21:26:00.004Z

If news reports are to be believed, then next week will see the Government set out its stall on executive pay reform. I won't rehearse the issues I think are important, save to say I think failing to put employees on rem comms would be a missed opportunity. Rather, I think the intervention by Fidelity this week is worth having a look at.

They wrote a letter to the FT and subsequently press released the same points. Essentially Fidelity call for a binding vote on variable pay that would be forward-looking (ie if the company lost the vote payments covered by it couldn't be made). Interestingly they also propose that the threshold for passing the vote should be 75%, rather than the existing 50% on remuneration reports, share schemes etc. Plus they suggest a 'two strikes and you're out' approach whereby the rem comm chair has to stand down if the company fails two consecutive pay votes.

It's worth taking these proposals seriously because a) Fidelity rarely speak out on public policy and b) they are in thick with the Tories (they have donated almost £450K over the past 3 years, with a further £50k bunged to the anti-AV campaign). My suspicious mind wonders if their public support for a binding vote is in any way linked to the fact that Cameron's announcement of the idea fell flat.

That aside, I actually think what they have proposed sounds pretty good (it also demonstrates that, of course, you can make a binding vote work if you put your mind to it). Having had a quick look through historical voting data, it looks as tough over the past five years about 100 companies would have failed to clear a 75% threshold. This assumes that investors would vote broadly the same way with a forward-looking binding vote, which is hugely questionable, but at least gives you an idea. I also reckon about a dozen companies would have failed two consecutive votes (Though bear in mind the Shell rem comm chair went after one defeat). So this would have an impact, largely at the margins admittedly, but certainly a potentially tougher regime (depending on voting behaviour).

One issue worth bearing in mind is the shifting nature of UK share ownership. A 75% threshold would mean that, potentially, a company could be defeated on pay policy by the voting power of overseas investors alone. Not a problem in and of itself, but you can imagine that the focus on... cough... ISS... cough.... could become sharper.

Of course, the other thing this approach would do is introduce the idea of a super-majority for certain issues. But if you need 75% to pass a pay vote, why would takeovers still only require a simple majority? Or director elections? Once the principle is conceded you can see that existing thresholds on other issues would also become open to challenge. (Personally I do find it hard to see why it should be harder to set pay policy than to buy/sell a company).

Adventures in voting data...

2012-01-17T07:52:00.000Z

There's quite a bit of emphasis of late on linking non-financial targets to executive pay, the aim being to focus directors on these issues. As is no doubt obvious, I'm sceptical about the value of doing this. Indeed, if you accept that motivation crowding is a real problem (big if, obviously) then tying contingent rewards to things people might already consider to be worth doing might be positively harmful.

Anyhow, trawling through asset manager voting disclosures recently I came across this from Kames (formerly Aegon). It's their rationale for opposing the remuneration report at United Utilities last year:

We have an issue with the use of “employee engagement” as a metric for measuring performance under the long term incentive plan.

This target is opaque and is already utilised in the annual bonus plan. 25% of the performance is based on this metric and we believe that it is too high for what is effectively a part of the day to day running of a large business.

Ho hum.

Post-democracy

2012-01-14T20:04:00.002Z

A couple of snippets from this. The first bit felt a bit relevant to corp gov (ie incessant focus on the 'accountability' of directors to shareholders).

[T]here is... an important difference between two concepts of the active democratic citizen, which is not recognised in optimistic discussions. On the one hand is positive citizenship, where groups and organisations of people together develop collective identities, and autonomously formulate demands based on them, which they pass on to the political system. On the other hand is the negative activism of blame and complaint, where the main aim of political controversy is to see politicians called to account, their heads placed on blocks, and their public and private integrity held up to intimate scrutiny. This difference is closely paralleled by two different conceptions of citizens' rights. Positive rights stress citizens' abilities to participate in their polity: the right to vote, to form and join organisations, to receive information. Negative rights are those which protect the individual against others, especially the state: rights to sue, rights to property.

The second mini-snippet is a nice line about privelege, and our modern failure to spot it.

In non-democratic societies, class priveleges are proudly and arrogantly displayed, and subordinate classes are required to acknowledge their subordination; democracy challenges class priveleges in the name of subordinate classes; post-democracy denies the existence of both privelege and subordination.

Chuka Umunna develops Labour policy on corporate governance

2012-01-12T20:00:00.007Z

Chuka Umunna gave an interesting speech today on executive pay. In fact content-wise it's the best speech by a senior Labour politico I've read since Paul Myners was City minister. The content of it is important for a number of reasons.

First, it acknowledges that the issue is not simply one of "rewards for failure". Everyone can agree that the odd Fred Goodwin type case is A Bad Thing, and so it's easy enough for politicians to say that they disgree with them. It has, until recently, not been agreed that high executive pay is in itself a problem, and widespread one. By talking about "excessive pay and rewards for failure", a small but important shift has taken place, and that means a potentially more radical approach from Labour in the future.

This point is seemingly confirmed by the second thing I liked - the defence of political interest in executive pay. It's easy to forget how quickly the framing of this issue has shifted, even within Labour, so the easiest thing is a direct comparison. Here's Kitty Ussher in June 2008 when she was a Treasury minister:

[W]e will also resist the calls that have been made for direct regulation of executive pay.
Of course, remuneration packages should be strongly linked to effective performance, and incentives should be aligned with the long-term interests of the business and of shareholders – and we don’t support ‘rewards for failure’. [see what I mean!]

And over the last ten years, we have taken steps to improve transparency, and to encourage shareholders to improve accountability.

But I’m clear that executive pay is a matter for Boards and shareholders – not for Governments.

In contrast, here's Chuka Umunna in January 2012 (!):

There are some who say it is no business of government - no business of politicians - to be commenting on these matters. We have no right to interfere in the affairs of privately owned companies is their refrain. I could not disagree more strongly with that statement.

At the heart of my politics is the belief that we are all mutually dependent. This notion is deeply embedded in the values of the Labour Party. Better together. Stronger together.

So to argue that politicians and society at large, should not take an interest in these matters, is to feed the idea that society is here and business is over in the corner there which is dangerous.

That's a big change in tone.

Thirdly, this is the first speech I can remember from a politician covering the corporate governance brief where the motivational value of financial incentives for directors has been questioned. This may, in part, be because Labour has agreed to implement all the High Pay Commission's recommendations, and the Commission's full report is a bit sceptical about incentives. Still, it is really valuable that someone with political power is saying stuff like this:

This demonstrates what psychologists have already found – that the relationship between financial incentives and performance is far from simple, and is not even reliably positive.

At the same time, the heavy focus on the alignment of high powered incentives risks crowding out other, more rounded but equally powerful intrinsic motivations of executives that are just as relevant to the company’s success – the satisfaction of doing a good job, the pride in leading and growing a great company, of winning in the market place, of having the respect of peers, of creating a legacy of sustained and sustainable success.

We are not opposed to performance related pay but it does make you wonder: if a company is so concerned that an executive paid only their salary won’t be motivated to work hard in the best interests of the company, then maybe they have the wrong person in the job?

This is broadly what I think, so would be supportive anyway, but it is really encouraging to see a politician willing to at least entertain the idea that there might be more to reform of the structure of exec pay than better carrot design.

And that leads on to the last point I would make - that there are a few ideas in here. The suggestion for Swedish-style shareholder representation on nomination committees is pretty radical stuff in terms of willingness to entertain a quite different approach to current UK practice (I think I detect the hand of Paul Myners, as he has pushed this idea). I know it's easier to float radical ideas when you are in opposition and don't have to put them into practice, but nonetheless this speech does seem to indicate that in a pretty important area of policy Labour is willing to do some thinking.

Binding shareholder vote falls flat

2012-01-09T19:58:00.005Z

It has to be a bit of a rarity for a proposed corporate governance reform to both be big a big news story and be immediately trashed by just about everybody. But that is what has happened in response to the proposal by David Cameron yesterday that shareholders should get a binding vote on pay. I said it might be seen as a duff idea, but I had no idea it would fall this flat.

You can find a critical news story in pretty much all the papers today, many of them quoting significant bodies (CBI, NAPF, IMA etc) saying it won't achieve much. You can try the Telegraph, Mail, Indie, Grauniad, Pesto again, Citywire etc etc etc. What's more if press calls today are anything to go by there will be more scepticism about the proposal expressed in the papers.

The main points that have been made are that asset managers (who control most of the votes) aren't bothered about pay, haven't used the rights they already have, and might be conflicted because they are well paid themselves. These are all simple points that the average punter can easily grasp, and it's straightforward enough to present this as Cameron proposing an ineffectual reform rather than tackling a divisive issue. So I wonder if he might lose control of this issue. It's possible that the Coalition will now need to go further if the PM wants to look 'tough' on top pay. Pressing ahead with a binding vote without undertaking other significant reforms is not going to get a good response.

Interesting times.

The politics of executive pay

2012-01-08T17:34:00.004Z

We are entering a very interesting period in the executive pay debate. Today's Andrew Marr interview with David Cameron confirmed one reform we can expect - some kind of binding shareholder vote on remuneration. Cameron also said he wants to address the issue of executives setting each others' pay. But when pushed on the disclosure of pay ratios, and on employee representation on rem comms, he was not committing to anything.

The language he used was also interesting. As usual the argument was made that there is an issue of rewards for failure, but he quoted the IDS headline stat on growth in reward in the FTSE100, and he also talked about "market failure". My own view (and I am genuinely trying to take off my pro-Labour goggles) is that Cameron is very media-oriented, so my inclination is to believe that the language employed doesn't have any depth to it. Because if the PM really does believe what he says - that there is a market failure in executive reward - that goes significantly beyond rewards for failure, and would require serious intervention. If you believe instead that Cameron is principally trying to make high pay go away as a political problem for the Tories (who, polling shows, are seen by punters as favouring the wealthy) then what we are seeing makes a lot more sense. (After all note it is Cameron, not Vince Cable, who is pre-announcing some of the conclusions of a consultation that is being undertaken by BIS.)

On the detail (such as it is) as I've repeated ad nauseum on here, there's always been a question mark over whether shareholders will tackle high pay. Shareholders already have an advisory vote on remuneration reports, and a binding vote on new share schemes. On rare occasions they have used these to defeat companies. But rare is the word. So why would Cameron think that giving shareholders a binding vote would make a difference? Surely it won't unless shareholders - and really in practice we mean asset managers - are willing to vote against more often, and, if anything, there's an argument that some shareholders might use a binding vote less often than an advisory one. Putting the emphasis on shareholders to make the difference looks like an odd strategy given recent history. It is very notable that a lot of immediate reaction on Twitter this morning to the idea was very negative, for exactly this reason. Pesto was similarly sceptical in his blog today:

it is not altogether obvious that turning this vote from an advisory one into one with compelling force would lead to another step change in shareholder engagement with executive pay.
The big uncomfortable fact is that many investors are, by dint of who they are, absentee landlords.
If they are hedge funds and other speculators that hold shares for months, or weeks or even fractions of a second, they could not give a fig about whether a chief executive is paid £4m a year or £5m a year.

This is rapidly becoming the popular wisdom, which is quite a sharp break with opinion in the business comment pages even a few years back. So it could be that this is seen as a duff idea from the start.

What about this idea of trying to restrict cross directorships? As a number of people have pointed out (and I doff my cap to Manifest for their blog piece) the allegation that this is part of the problem doesn't stack up. In any case, whilst changing a few rem comm chairs would not require much effort, neither is it likely to make much difference. Again, it looks a bit like wanting to be seen to "do something", rather than wanting to address the problem.

And what is the problem? Again, I make this point regularly but, in my opinion, rewards for failure should not be the principal concern. It's a much deeper trend whereby directors of large PLCs across the board have been able to extract more reward from the companies they run. The reasons for this are unclear. I would agree that a failure of shareholders to act is part of the problem, but it's also a trend that has emerged since the collapse of the post-war consensus and the decline of organised labour as a countervailing force within companies. If your concern is really the industrywide trend, rather than the rare Fred Goodwin type cases, it requires a serious strategy.

Unfortunately if the Coalition's action on executive pay is limited to what Cameron focused on today then we can expect to see executive reward continuing to rise compared to that of the rest of the workforce. It's an odd approach, given that it means we'll probably need to have another look at the issue in a few years.

Looking a bit more at party politics here, the fact that exec pay is a hot public policy issue again also means we're seeing some competition to look tough on pay from both Labour and the Lib Dems. The consultation Cameron is seeking to steal credit for is a BIS initiative after all, so Vince is going to want to try and push as far as possible. It's hard work reading the tea leaves on the balance of opinion on the idea of employees on rem comms, but a few reports have said that Saint Vince is in favour. This is one area where Labour's position has been consistent (ie we support the proposal) and have been more radical than the Coalition. If Cable can't get it through expect to hear a lot more about it.

I think we may also see some pushback from the opposition on the idea of focusing mainly on beefing up shareholder powers. Labour can legitimately say that it gave this a try with the introduction of a shareholder advisory vote in 2003 and investors haven't seemed to be keen to use it. Since then the shareholders of UK PLC have changed too, more overseas investors for example and maybe a greater slice held by hedge funds. So relying on shareholders to police pay could be portrayed as even weaker. Again, if Vince can't win on the employee representation point, it's quite easy to say to Cameron (and it will be the Tories that will be the focus) why do you trust hedge funds more than employees to address high pay? Attention would no doubt also be drawn, again, to the Tories' reliance on City funding, the honours list etc.

Notably Labour has also said it would introduce the High Pay Commission recommendations in full. That includes the voting disclosure recommendation, and I note that Chuka Ummuna has focused on this one a few times. As someone who has followed this one for years, I would merely point out that Lib Dems and Tories successfully combined in the Lords to vote down the relevant clause in the Companies Act (it was later reinstated of course). The Tories were particularly opposed, literally reading from the asset management lobby's script.

For all these reasons I think Cameron may actually be playing with fire by seeking to get headlines out of executive pay if he won't back it up with real reform.

Of course the bigger political point lurking behind this discussion is the nature of the governance regime. If shareholders are not in a position to act on pay, is shareholder oversight in general flawed? If employee representation on rem comms is acceptable, why not on the board? There are big issues here that have not been properly reviewed for years. Exec pay is merely one of the symptoms that draw attention to them. Despite all the renewed talk about 'responsible capitalism' I'm unclear whether any of the parties has the desire to really get stuck into this, but I hope Labour has something to say.

Shareholder maximisation & risk

2012-01-05T07:04:00.001Z

The section below, from Colin Crouch's rather ace book The Strange Non-Death of Neo-Liberalism, is rather interesting. The picture is familiar - companies under pressure from shareholders to hit certain targets will sacrifice investment etc (sometimes even if they think it will provide a long-term benefit). What I hadn't considered before (maybe I was being fick) was how this in a sense twists the idea of shareholder rights being a compensation for risk. If shareholders were long-term oriented it shouldn't happen - they ought to want companies to invest even if it means missing a few quarterly targets. But shareholders - or at least those that assume that role given the delegation of authority by asset owners - don't think like that. That's probably in (large?) part because they too face short-term pressure.

There is a further important consequence of the combination of shareholder maximisation and highly active, short-term markets. In theory, shareholders’ earnings, their dividends, based on profits, are the residuum in a firm’s trading activities, the last claim that is made on a firm after all claims from bond-holders, employees, creditors, investment needs and other requirements have been met. This is the risk-bearing activity at the heart of capitalism that enables firms to be innovative and that justifies shareholder maximisation: if the shareholders must wait until all other contractual claims on a firm have been met then they need to be able to have the final say over how the firm is managed. Also, their rewards from successful transactions must be high, as these must compensate them for the losses that will come from risks that go wrong.

This principle remains valid if a firm goes bankrupt; shareholders have the last claims on any assets. But during routine operations of a viable company it has been heavily compromised by the emergence of profit expectations within today’s highly volatile stock markets. Ideas spread as to what short-term return on profits ought to be available in the market; remember shares are being bought and sold with an eye primarily on the secondary markets. There will therefore be a flight from shares of firms not meeting the prevailing idea of a good return. Such firms become vulnerable to hostile takeover, something which senior managers are keen to avoid, as it often leads to them losing their jobs. Managers are therefore under strong pressure to meet or exceed a target level of return to shareholders. If necessary, investment plans, customer service and employee compensation will have to be held back to meet this target. Once this occurs, distributed profits are no longer a residuum but are an early call on a firm’s earnings. They are ceasing to be rewards for commercial risk, but are being protected from all risks other than those stemming from a collapse of secondary markets (where, we now know, government will protect them anyway).

A snippet on the value of shareholder voting

2012-01-05T07:00:00.001Z

From Jesse Norman's interesting paper, here.

A share’s vote is part of its value, and enforcement action should be taken against the directors of companies and financial institutions who fail to use their votes in the long-term interest of their beneficiaries.

I hadn't realised, though, that he used to work for ISS!

Exec pay, and keeping it really simple, stupid

2012-01-04T13:09:00.003Z

I blogged before xmas about some pretty crappy reporting about the Coalition's plans on executive pay - namely the unsubstantiated claim that Nick Clegg supported putting employees on rem comms.

Well there's another less than illuminating piece in the FT today on the same subject. As far as I can tell the story consists of news that David Cameron is really bloomin cross about high pay. What's more the Government is looking at a range of options - "nothing is off the table" apparently - and these include, err, some of the options that were in the BIS consultation on, err, exec pay.

So to sum up, the Government wants to do something on exec pay, and it might do some of things that are in the consultation on exec pay, which it launched when it first said it wanted to do something on exec pay. Really, there isn't much there. This looks like the sort of reannouncing of existing initiatives that Labour got away with for a bit but then journos started to loath. I'm surprised the FT went for it.

It's stuff like this that could turn me into a grumpy old man moaning about dumbing down. Coincidentally, it sort of meshes too with this piece in the Economist (hat-tip Mehdi Hasan on Twitter) about media reporting and narratives in the race for the Republican nomination.

the analysis strips away the fiction that the media are a neutral communications channel between candidates and voters, and turns attention towards the real influence that the media's natural biases—the bias towards surprise, the bias towards cliched sentimental background stories, the bias against sophistication or complexity, etc

A bias against complexity seems to be punching me in the face every time I watch telly at the moment. I know I'm a bit of a geek about some of this stuff, but I genuinely believe that the average punter could probably grasp the general arguments around executive pay, and some of the pros and cons of the ideas being considered. Instead the lead off is angry Dave and the policy content is restricted to a Nick Robinson-esque* "they might do this, they might do that", laid on the top like a bit of tinsel, rather than being the main focus.

Bah humbug.

*Incidentally, if you want to see some quality 'virtually content free' news, check out Nick's post on the negotiations over public sector pensions. He essentially said 'the unions are talking to the govt about pensions', plus a bit of 'one side may have the advantage, but so might the other'.

Crone and Myler, DCMS committee, 2009 vintage

2011-12-27T21:14:00.002Z

Q1511 Mr Watson: When did you tell Rupert Murdoch?

Mr Crone: I did not tell Rupert Murdoch.

Mr Myler: The sequence of events, Mr Watson, is very simple, and this is very clear: Mr Crone advised me, as the editor, what the legal advice was and it was to settle. Myself and Mr Crone then went to see James Murdoch and told him where we were with the situation. Mr Crone then continued with our outside lawyers the negotiation with Mr Taylor. Eventually a settlement was agreed. That was it.

Q1512 Mr Watson: So James Murdoch took the ultimate decision?

Mr Myler: James Murdoch was advised of the situation and agreed with our legal advice that we should settle.

Timing is everything

2011-12-18T18:25:00.003Z

Last week the DCMS committee received a letter from Linklaters including the transcript of That Email, which James Murdoch claims not to have read. The letter says that firm "recently became aware" of the email.

Notably this came after Linklaters had sent a letter to the committee on 1st December stating:

The MSC [News Corp's Management and Standards Committee] can confirm that it has reviewed all available documents likely to be relevant to Mr Myler’s request and is satisfied that none throw any further light on the events of May and June 2008.

On a sympathetic reading, having told the DCMS committee that there was no evidence relating to those crucial days in the summer of 2008, the MSC then stumbled upon this email (or, perhaps, was shown it by the police - see below). The email in question is rather relevant, as it suggests James Murdoch was made aware of the implications of the Taylor case (and, of course, he claims he didn't read all of the email).

The thing is, over a month ago, on 12th November, the Daily Mail ran a story saying that the police had discovered some "bombshell" emails that could be trouble for James Murdoch (they actually said that the police might want to question him). And on the evening of November 12th ex-Times editor Andrew Neil tweeted that a source close to Murdoch Snr had told him that they were indeed bad news for Murdoch Jnr.

Brillo Pad's exact words were:

Source close to R Murdoch tells me emails uncovered by police in India (see today's Daily Mail) potentially 'devastating' for James M down.

A source close to Rupe sounds like a News Corp, or ex News Corp, person, and this is someone who is aware back in mid November of "emails" that are "devastating" for James Murdoch. So, unless there are more emails to emerge (which, to state the obvious, would be worse for Murdoch Jnr) it seems reasonable assumption that the transcript disclosed to the DCMS committee last week is one of the "bombshell" emails that the Mail story i November referred to. It's possibly significant that Neil tweeted 'potentially devastating', perhaps indicating the source's view that the evidence could be spun (ie by claiming the email hadn't been read properly).

But the timeline also means that someone close to Murdoch Snr knew about this crucial email a month before it was disclosed to the select committee. Does that mean that Murdoch knew too? More significantly, someone knew about this in mid-November - before shareholders voted on James Murdoch's re-election as BSkyB chair. As I said, the Mail story appeared on 12th November. That was two days after Murdoch Jnr appeared before the DCMS committee. So it is even possible that someone knew about this email before he gave evidence.

There are some big issues lurking here that deserve exploration. In terms of News Corp's internal governance, how is a source close to Rupert Murdoch able to take a view on these emails more than a month before the company's own internal investigation seems to have become aware of them? When did the MSC know? Who knew before then? Was this information known by News Corp before the BSkyB AGM, and if so was it communicated to the board?

Someone, somewhere knew a lot earlier, and they may have allowed BSkyB shareholders to take a crucial voting decision without letting them have access to significant new information. Securities litigation people could have a field day here.

James Murdoch: I did not inhale

2011-12-13T21:29:00.000Z

The DCMS committee has published an email transcript sent to it by Linklaters. Colin Myler emailed James Murdoch ahead of the crunch meeting in early June 2008 to discuss the Taylor case. In the email Myler says "unfortunately it is as bad as we feared" and draws attention to Julian Pike's comments. If you scroll down (one page) you can see Pike's bullet points which include the comment that Taylor wanted to prove that hacking was widespread and that Parliament had been led by the claim that it was just one, rogue reporter.

So the killer info, that James Murdoch claims he wasn't made aware of, was there in an email he was sent three days ahead of the meeting. His answer? Despite responding to the email he did not read the full thing, either then or later. He didn't review an email which Crone described as an update on the Taylor case, before a meeting to discuss exactly that case and whether to settle it.

Pick the bones out of that one.

Whilst you were looking at Europe the regulatory turn happened here

2011-12-09T14:49:00.009Z

You'll recall, of course, that there is a popular narrative in the UK investment world about stupid Eurocrats meddling in stuff they don't understand. The plebs on the continent are unable to grasp the understated elegance of 'comply or explain', for example, and just want to try and 'regulate' bad behaviour or poor decision-making out of existence. That in turn means we need to defend our model against this threat by demonstrating that a market-driven approach is inherently superior to any silly ideas the EC might come up with.

What to make of this then (another excellent scoop from Sky man Mark Kleinman it has to be said)?

Regulators should be given greater powers to block hostile bank takeovers in order to avoid a future crisis like the one that forced Royal Bank of Scotland’s (RBS’s) into a £45bn taxpayer bail-out, the chairman of the Financial Services Authority (FSA) will say next week.

So we are now at the point where the FSA believes it should be able to block hostile takeovers because of potential systemic risk. This is important for several reasons, when thinking about just how market oriented our system really is. Firstly it means that regulators get to decide on takeovers before shareholders do. You might want to vote to take the cash, but the FSA might block a deal before you get a chance to. Secondly, it clearly implies that regulators think that shareholders may not spot/oppose deals that are extremely risky. Thirdly, it could come to set a benchmark, whether intended or not, of 'FSA approved' takeovers. This is not insignificant.

But there's more:

The report, which runs to about 490 pages, contains recommendations about the future of banking regulation. These include raising the prospect of bank directors being forced to prove their innocence in the event of a future bank failure; being obliged to forfeit remuneration; or toughening laws governing directors’ liability in the event that their bank goes bust.

So, potentially much tougher standards for those involved in the corporate governance of banks, including potentially changing their liability for failures. This goes a bit further than the Corporate Governance Code, doesn't it? An obvious question, and an argument that we'll no doubt hear pretty quickly from the banking lobby, is whether this will stop people wanting to become directors of UK-regulated banks.

And there's more:

In his introduction to the report, Lord Turner, the FSA chairman, argues that in contrast to the boards of other companies, directors of banks should place less emphasis on profit maximisation and more on effective risk management.

What to say? If accurate this is a fundamental challenge to the idea that we should just let businesses, even systemically important financial institutions, pursue their own interests because it ought inevitably to benefit us. It's almost a 2008 vintage mid-crisis perspective.

And there's a bit more:

I’ve learned that as part of its inquiry, the FSA wrote to former non-executives of the bank, including Sir Tom McKillop, the chairman at the time of RBS’s collapse, to gauge whether they had felt intimidated or bullied by Sir Fred’s notably autocratic style. I’m told that none of the former directors responded that they had.

I wonder if any of the large investment institutions, or their representative bodies, have done anything like this? I strongly suspect the answer is no. But, with the benefit of hindsight, it seems like such an obvious thing to do. Another indication that shareholders currently just aren't set up to play the ownership role? Whether or not that is the case, it certainly seems to be true that the FSA is playing an ever greater role in the governance of the businesses under its watch.

This is not an isolated incident. Remember, for example, that the FSA is looking into the Pru/AIA bid, and has apparently told Santander to strengthen its governance. Again these interventions are very significant because inevitably they will carry more weight than shareholders putting on pressure. This is particularly the case when any UK-listed financial institution with any smarts will know that a) there are investing institutions out there that would rather bite their own arms off than vote against and b) even where there is shareholder unease they can paly 'divide and rule'. Doesn't always work, but at least more of a fighting chance than when dealing with the regulator (bear in mind, for example, that neither chair or chief exec went from Pru despite the failed deal).

As I've been banging on for some time, we should not kid ourselves that the UK is purely-driven governance regime and should instead be aware that a more regulatory approach is already on the cards. The more I look at some of the commentary about sticking up for the UK model against EU regulatory interference the less I consider it corresponds to reality, at least in respect of listed financial institutions. And once you let regulators play a role in the governance of some sectors, why not others?

Corporate governance consequences - unintended, intended and unrealised

2011-12-08T10:20:00.012Z

One piece of conventional wisdom you regularly hear invoked in the corporate governance world is The Law of Unintended Consequences (LUC). It is usually, though not always, aimed at government intervention over a given policy issue as is (in my experience) usually believed by the user to be a logical smackdown. You might think that if the Government does A to B then C will happen, but actually perhaps D will happen instead. And D is usually Very Bad Indeed.

The LUC has often been prayed in aid of conservative positions on PLC executive pay. You may think that trying to rein in pay is a laudable aim, but what you don't realise is that it could actually cause problems. It could cause executive talent to move into the private equity world or worse move out the UK, taking potential tax revenue with them.

A more sophisticated claim in recent years, that is widely believed in corporate governance world, is that greater disclosure of executive remuneration has served to exacerbate the problem by fuelling the war for talent. Greater disclosure was meant to lead to pay being restrained but in reality, apparently, it had the opposite effect of that intended. It all sounds plausible. And indeed it would be a mistake to not consider how "purposive social action" might result in outcomes other than those intended. Life is very complex and billiard ball models of causation may only rarely fit the facts when humans are involved.

However, there are several problems with regularly invoking the LUC as an argument againbst reform. For one, at the risk of stating the obvious, there are plenty of examples were the consequences of a particular policy intervention are those that were intended. For example, I have yet to hear a plausible negative unintended consequence of the introduction of pensions. Yes, we have to deal the consequences of people living longer, but that is not a result of the provision of pensions. This was a big social reform that has touched millions of lives. What are the big negative results?

Second, there are, of course, positive unintended consequences. It's interesting to note that "unintended consequences" are so often portrayed as a threat or negative outcome that when we hear the term we probably all immediately think in these terms. That is an indication, in my opinion, of how often this argument is invoked in defence of conservative positions. And yet isn't a commitment to free markets rooted in the possibility of unintended positive consequences? After all, It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. Unintended consequences, no?

In policy terms perhaps we could describe the "automatic stabilisers" in the economy as positive unintended consequences. For example, unemployment benefits were largely introduced to address a social problem, but, by maintaining a level of demand when people lose their jobs, they also began to play a role in the economy that wasn't initially part of the plan. (Obviously this will be disputed by some people!)

Thirdly, as Albert Hirschman pointed out, the flipside of unintended consequences is unrealised expectations. By undertaking reform X you expect Y to happen, but it doesn't. It doesn't lead to unintended consequences, but it doesn't have the intended consequences either.

So let's consider executive pay reform in the UK again. Actually greater disclosure of pay was combined with shareholder empowerment - the introduction of an advisory vote on remuneration policy. The intention was that, armed with more information and greater powers, shareholders would act to restrain unjustified executive reward, because it would be in their own interest to do so. Therefore perhaps the bigger story of the last round of major reform in this area - the Directors Remuneration Reporting Regulations - is less the alleged unintended consequence of greater disclosure, and more the unrealised expectation of shareholders exercising restraint over directors in respect of pay.

If greater disclosure of executive pay added to upwards pressure, then why didn't shareholders use their new rights more effectively? Remember, for example, that no remuneration reports at all were defeated in 2007 and 2008. I'm prepared to accept that disclosure may have fanned the flames, though I think the argument is overdone, but then the question for me is why shareholders didn't protect their own assets. Perhaps it's because shareholders don't consider the extra costs to be excessive in the total scheme of things, or even consider that it is simply a cost of doing business in order to attract the best talent. But then can it really be claimed that disclosure has caused unjustified pay growth?

If you do think both that disclosure is a major driver of executive pay growth and that there isn't much that shareholders could have done any different (and these are the implicit propositions some in the investment industry are putting forward, even if they are unaware of it) then this, again, raises a question about shareholder oversight of pay. That in turn may lead policymakers to conclude that an alternative approach is required, a more regulatory approach, or stakeholder model of governance, perhaps.

The thing is, I'm sure this isn't the outcome that those invoking the LUC to oppose public policy intervention expected. One might even argue that it is the unintended consequence of warning about unintended consequences.

Phone-hacking in numbers

2011-12-07T11:15:00.003Z

Another arrest today, and here's a snippet on the scale of the investigation from The Grauniad:

Scotland Yard's phone-hacking squad is working its way through 300m emails from News International. A total of 120 officers and staff are now working on the investigation after 1,800 people came forward to express fears that they may have been hacked.

UPDATE: It's Mulcaire... very interesting.

Flat Earth News... about executive pay

2011-12-05T19:33:00.007Z

I think I'll look back on the second half of 2011 and think that two issues have occupied a lot of my time - media standards and ethics, and the policy debate around executive pay. I admit to being off the pace on the first. I read quite a few pieces of commentary about the likely extent of phone-hacking at the back end of last year and assumed that a) there was probably something in it but b) it wasn't a really big deal. Like many people, I was wildly wrong.

On the second issue, exec pay, I've been expecting the terms of the debate to shift for some time. I am (pleasantly) surprised at the speed of movement lately, in no small part due to the High Pay Commission, but I did think the nature of the discussion was going to change. I still think this has some way to go. For example, there is still a definite strand in the discussion that seeks to paint the main issue as rewards for failure. This is important, no doubt, and hence the focus on clawback lately is welcome. But I think this the 1990s vintage of the exec pay argument. I think in the next few years it will be much harder to get away with "I have no problem with large rewards if there has been excellent performance" type lines. In a period of austerity I think there will be scrutiny of large rewards per se if they are not shared across organisations.

This is likely to cause sparks to fly, as I think even now the business lobby is only reluctantly signing up to the idea that rewards for failure need to b dealt with more effectively. I think they may keep trying to fight that battle whilst other participants in the debate move on to the question of whether large rewards are justifiable if not shared more evenly across organisations. One to watch I think.

Anyhow, these areas of interest have collided. I recently started reading Flat Earth News by Nick Davies, principally because I wanted to see what he said about phone-hacking (actually not much in the scheme of things). However the book is much more concerned with how journalistic standards have become corrupted by cost pressures. Phone hacking and blagging are good examples of this in practice since they are cheap ways of getting information that journalists want. Nick Davies also explores in some detail the reliance on newswires by many mainstream news organisations (the nationals, Beeb, etc). Importantly that means that often the particular emphasis put on a story by the newswire can affect the coverage of the story in numerous outlets. It also means that an error can be spread through the media system quite easily, since people assume the wires get the facts right and don't check them.

Well today I was off sick so did a bit of work from home instead. I noticed that Nick Clegg's interview on the Andrew Marr Show was picked up in numerous places on the back of his comments on executive pay. The bit that really stuck in my mind was what he apparently said about remuneration committees.

For instance, the FT says:

Mr Clegg said he was also looking at whether to “break open the closed shop of remuneration committees” by adding an employee representative into the group that sets executive pay.

The Telegraph (which embeds the Beeb clip in its story) says:

The government will publish new proposals to "get tough" on excessive pay in January, the deputy prime minister said.
Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.

The Grauniad agrees:

The deputy prime minister said that ministers would publish firm proposals next month, and the government was willing to legislate if necessary on measures that could include forcing firms to let workers sit on the remuneration committees setting pay rates for top executives.

And even the Beeb web story says:

The government is to publish new proposals to curb "unjustified and irresponsible" pay rewards in the private sector, Nick Clegg has said.
The deputy prime minister said ministers would announce plans to "get tough" on excessive boardroom pay in January and may legislate if necessary.
Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.
.....
Remuneration committees, the bodies which set the pay of top executives, were too often "closed shops", resembling "old boys" clubs, and he wanted to "break open" membership of these bodies.
Labour want workers to have a seat on remuneration committees to ensure their voices are heard and Mr Clegg suggested this was one area being looked at.

There's just one problem - he didn't say it. I've watched the clip on the Beeb site through several times now. He certainly says rem comms are too much of an old boys club, but, unless I am missing something, he doesn't even mention employee representation. *(see update at bottom, in full interview he is asked about it).

This is rather important, because there is a big difference IMO between opening up rem comm membership more widely and including an employee representative. They overlap, but the second implies a formal role for the workforce, or its representatives, in this aspect of corporate governance. This point isn't lost on the CBI, which says (PDF):

the inclusion of additional independent members or employee representatives on RemCos would fundamentally change the UK’s corporate governance framework.

So it is kind of important if Nick Clegg does indeed support employees on rem comms, or not. It would be a big statement of intent.

So where has this line come from? Was there more to the interview that the BBC clip doesn't include? Did a BIS spinner get busy after the interview to make sure the press got the message of what Nick Clegg really said? Or did a newswire put out a story that blended together what BIS consulted on (which includes employee reps) and what Nick Clegg, and the error got replicated widely? I genuinely don't know.

But on the face of it it seems that what we have at present is a bunch of national newspaper reports that claim that the Deputy Prime Minister said something which he actually didn't, and which can be easily cross-checked against a publicly available clip of the interview.

*UPDATE: Actually to be fair, in the full version of the interview on BBC iPlayer Clegg IS asked about employees on rem comms. But he just says they have consulted on it. He does not say he supports the idea, that it is likely or give any kind of opinion on the issue.

Pessimism of the intellect...

2011-11-29T16:59:00.003Z

...and all that, so that's what I'm blaming for being wrong, big style, about the BSkyB vote. The headline vote against James Murdoch was a bit shy of 19% (quite a bit above what I was expecting). Bad for any company, bad for any chair, well above average, and putting him the 1% of directors most unpopular with shareholders this year.

But when you back out the News Corp vote it gets very interesting. A few media outlets have got this badly wrong, including Pesto, and suggested that about a third of indie shareholders failed to back JM. Not so. You need to look at the actual number of shares voted.

The company says 1,105m shares vote for, 255m opposed, and 105m abstained. But, on a conservative reading, News Corp voted about 650m of those shares. Taking that out of the total means that the indie shareholder support for James is only about 55% I think.

That is a serious loss of confidence that the board will struggle to spin. If you're a shareholder and you think this company needs an independent chair now is the time to be pushing for it.

BSkyB latest

2011-11-28T13:34:00.002Z

OK, from what I've read it seems that Legal & General, Kames (Aegon investment arm) and Franklin Templeton are all opposing James Murdoch. That's on top of the three US investors identifed last week.

I suspect L&G's opposition will sting as it's a top 10 investor and has many UK pension fund clients who will be reading about their opposition in its Q1 reports to trustees. It can't be good news that large shareholders are public in their opposition to Murdoch either. Very difficult to change your mind once you're in the public domain saying a new chair is needed.

According to one report, Capital has voted for Murdoch but privately told the company it needs a new chair. I don't think that will be a one-off, so tomorrow's vote may not tell the whole story.

Also a certain hapless right-wing blogger has got himself called before the Leveson Inquiry for leaking Alastair Campbell's evidence. Incredibly the evidence is still available online. It is believed to say that Campbell received threatening phonecalls and texts "from the office of James Murdoch" when he supported The Guardian's 2009 story on the extent of phone hacking.

I'll blog asap tomorrow when the vote is out. Look out for possible large number of abstentions driven by ISS recommendation.

More BSkyB snippets

2011-11-25T07:30:00.001Z

Good bit from Hugh at Responsible Investor (cough up for a sub, well-paid asset manager types!!) on pre-disclosure of votes at the BSkyB AGM. CalSTRS, Florida and Christian Brothers all opposing James Murdoch, with CalSTRS opposing the whole BSkyB board. (hat-tip to Fair Pensions for alerting me to this)

Separately Chris Bryant MP has written out to institutional shareholders urging them to oppose James Murdoch's re-election. Can't think of a previous example of this happening? Though maybe some MPs were involved in shareholder campaigns in the 1990s? (Cedric the Pig etc).

For what it's worth I expect Murdoch to be re-elected very easily, with opposition maybe as low as 10%. Enough shareholders seem to be willing to take the board's word that he's a good egg. But I also don't think this will be the end of the story...

Exec pay, and how some still fail to get the point

2011-11-22T21:41:00.006Z

Today saw the publication of the High Pay Commission's final report which is, as should be obvious, well worth a read. I won't do a re-tread of the arguments & proposals it contains because you can find much better versions of that elsewhere. Instead my quick take on a few of what I think are the Commission's key points are, and their wider significance.

Radical simplification of executive pay is, just about, a win-win since no-one except remuneration consultants really benefits from complexity. Investors are sick of reading rem reports that go one for a dozen or so pages, and anecdotal feedback from directors suggests that they don't really know what they're getting when things get to a certain level of complexity.

But, as David Prosser (whose comment piece on the report is probably the most interesting I've read) points out in the Indie, complexity is a result of what investors supposedly want - carefully-designed performance linkage:

it is worth noting that the pay structures in place at many companies today reflect previous attempts to hold executives to account (rather than, in most cases, to obfuscate, as the High Pay Commission rather uncharitably suggests). Executive pay is now set with reference to hugely complicated performance yardsticks because remuneration committees have sought to show they are sensitive to complaints about rewards for failure. So sensitive, in fact, that it is almost impossible to understand the pay formulas they put in place.

This is a point that deserves to get made in responses to the BIS consultation that closes this week.

Of course this also feeds into the question of whether the performance linkage that investors have sought to put in place is actually desirable after all. For one, does it simply replicate the performance pressure that asset managers (who cast most of the votes on rem reports) are themselves under? Do we really want our largest public companies run with one eye on short-term share price fluctuations that, in reality, may be nothing but noise?

Secondly, are we sure that performance linkage delivers... err... performance? It's notable that the Commission digs into this a bit and comes up with a fair bit of evidence, academic and anecdotal, that complicated incentive schemes don't really motivate directors. Again, this seems to be an argument that is gaining ground and, in my opinion, with good reason.

The other headline proposal that has got most attention is rem comm reform, and in particular the idea that employees should have representation. Within a couple of years this idea has gone from being advocated by just a handful of organisations (with the TUC the most obvious) to being seriously discussed. There are a number of reasons for this. One is that the idea that rem comms are too clubby, and that directors set each others' pay and therefore have no incentive to be tough, is easily graspable, so (unlike much corp gov policy) reform here has a tiny sliver of populist resonance. Second, as I've argued a bit, there's some psychological evidence that shaking up group membership to make it more diverse (opinions wise) can make decision-making less extreme (see Cass Sunsteain for details). Third it's a reform that seeks to address exec pay earlier in the process - at the decision-making stage - rather than most recent reform which has focused on disclosure+shareholder empowerment so that decisions already taken can be challenged.

This last point is important, because it's a tacit admission that shareholder oversight, as currently constituted, isn't really cracking the exec pay problem. It could be because they still don't have the right tools and/or right info, but I suspect most informed comment on this topic would now concede that it's actually a deeper problem relating to share ownership. We either don't have the right shareholders to make it work, or they aren't motivated to do so. Here the Commission admits that the subject is beyond its remit, but it is striking that they highlight a potential problem in relying on shareholder oversight alone. Many of us would argue that a stronger focus on the stewardship aspects of share-ownership is required, but a look at the voting records of asset managers on rem reports (see TUC survey for details...) shows that we face a huge challenge.

In all of this I think the Commission has pushed the debate on executive pay onto new terrain (or shifted the Overton window if you prefer!). It's recommendations will probably become the new normal pretty quickly, which was I'm sure the aim. There will be a fight over the employee reps point, but some kind of rem comm reform looks increasingly likely.

So far so simple, which leads me to the failure of some people to get the point. The FT's editorial on the Commission this morning was particularly weak. It reads:

A better strategy [than employee reps] would be to strengthen the role of shareholders. At the moment, they have only an advisory vote, relating to decisions already made.

This implies two things - a binding vote and/or a forward-looking vote. A binding vote would in essence be an instruction to the company, and a forward-looking one could, presumably, affect the distribution of resources. I'd certainly be interested to see these ideas fleshed out. But given that in nine years of advisory votes on remuneration reports, shareholders collectively have defeated under 20, where is the evidence that simply improving shareholder powers is "a better strategy"? Given that many asset managers rarely use the weak power they have already, what leads the FT to conclude that the solution is to tool them up further? The Telegraph makes a similar point in its editorial, but I expect them to put forward solutions they expect to fail to a problem they, in truth, are not sure actually exists (markets should get pay right, right?). The FT really ought to know better.

Which leads me onto my final point, and back to David Prosser's article. I think the Commission has done a good job as it has essentially aimed a couple of years into the future, plotting forward a bit from where we are. So, unless you are the sort of person who thinks that employee reps on rem comms is a Cuban approach to policy, none of the proposals are particularly radical, IMO. But if people really want to fight the last war, and propose another throw of the dice for disclosure+shareholder empowerment, let's see where that takes us. I suspect that it will mean a few years down the track we will far more illiberal ideas for dealing with pay come into play:

In the end, capping pay, or pay ratios, might be impossible politically, but it would be a much more direct way to tackle the problems identified by the High Pay Commission.

TUC voting survey

2011-11-21T21:02:00.004Z

It's that time of the year again - the annual TUC trustee conference was last week, and at it the annual voting survey was launched. The conference was great, though I couldn't see it all as had to head out for a lunchtime meeting.

The blurb from this year's survey is below. The voting on bank remuneration reports is pretty depressing (especially Barclays!). Also interesting is the voting on James Murdoch at last year's BSkyB AGM - I am pretty sure there are some switchers this year...

Remuneration reports most likely issue to be opposed by institutional investors

Remuneration reports drew the greatest opposition from institutional investors yet bank remuneration reports were widely supported, according to the latest TUC fund manager voting survey published today (Tuesday).

The ninth annual fund manager fund voting survey, published to coincide with the TUC Pension Trustee Conference taking place in central London today, analyses the voting records of more than 20 fund managers, pension funds and voting agencies across 69 company resolutions between January and December 2010.

The survey has again found a sharp divide in voting stances, with four respondents supporting more than 70 per cent of resolutions, while five respondents supported less than a third.

Remuneration was the most common topic of engagement and the issue over which respondents were most likely to oppose company management. Half of the survey respondents supported less than half the remuneration reports on which votes were sought, and many supported less than a third.

The remuneration reports of all five major UK-listed banks were included in this year's survey. Surprisingly, bank remuneration reports comprised three of the five reports with the highest level of support in the survey. Barclays' remuneration report was backed by 75 per cent of all respondents - the highest in the survey.

These findings are surprising given the banks' recent stock market performance and dividend returns, says the TUC.

This year's survey showed further progress in the disclosure of voting records, with 13 respondents disclosing a full voting record, compared to just nine last year. However, the quality of information varied, with several fund managers only disclosing votes against and abstentions, and others only providing headline statistics.

This improvement in voting disclosure is good news for pension trustees and pension scheme members as it helps them to see how fund managers are using their shareholder mandate to influence companies, says the TUC.

Several respondents indentified changes made as a result of the introduction of the Stewardship Code a year ago, such as improved engagement record keeping. However, the Code has had very little effect on the voting stances taken by institutional investors and needs to be toughened up, says the TUC.

TUC General Secretary Brendan Barber said: 'Shareholders are supposed to be the ultimate check on our corporate system, but too many fund managers are still failing to use the power of their investments to influence corporate behaviour.

'The fact that UK bank remuneration reports received so much backing in the face of diminishing dividends and poor stock market performance is a clear sign that institutional investors are not doing their job properly.

'Reform of our corporate culture is long overdue and ministers need to take the lead in forcing through change, particularly on executive pay, where remuneration committees are frequently failing to act in a transparent and responsible manner.'

BSkyB weekend news

2011-11-20T15:48:00.003Z

According to this piece on Bloomberg, The Times has pulled together a list of supporters of James Murdoch at the forthcoming BSkyB AGM. They include Taube Hodson Stonex Partners and... ahem... Odey Asset Management. Yes, apparently Crispin Odey thinks James Murdoch is the "right guy" to chair the company. Big news indeed!

There are three more interesting bits about the Bloomberg/Times report. First is the prediction that Capital are on side too. That is important as they are big holder, but I wonder what their clients will think. Second is the absence of other names. Are they struggling to find supporters? Third is the 20% figure (ie if 20% plus oppose he should go), which also popped up in a Telegraph column. I think this may be expectation management by the company, and if so it might be a useful benchmark.

A more objective comparison will be typical votes against directors. In the first half of 2011 the average oppose plus abtain was about 2.5%, of which 1.7% was the oppose. So a 20% oppose vote would be more than 10 times the average. And how many directors ever receive this kind of opposition? Less than 1%. Looking at a sample of just under 2,000 directors facing election at an AGM in the first half of this year, I can only see 9 that got 20% plus against, and two of those were directors at Eurasian! Add in the fact that News Corp holds 38%, and the board is setting the bar exceptionally low.

BSkyB news 2

2011-11-18T06:04:00.004Z

So, apparently ISS have recommended an abstain on James Murdoch's re-election, but their report also reportedly says he should stand down as chair. That means that Murdoch has failed to receive the backing of any shareholder advisory group.

Of course, that doesn't mean much in itself, since asset managers don't just follow follow what their adviser says, and I have no doubt that a few of the usual suspects will continue to pull their punches. But there is undoubtedly some movement going on out there. Some asset managers will definitely take a tougher line this year than they have done for some time. There is also overseas investor interest in the chair's position.

I suspect asset managers may face questions from trustees about how they voted on James Murdoch, so support risks doing reputational damage. I still think he'll get through relatively easily, because I am cynical about mainstream asset managers, but this will store up trouble in the future.

I will be surprised if Murdoch doesn't get a slap of some form from the DCMS committee when it publishes its final report. The committee essentially seems to have come to the view that he is either incompetent or a liar. Taking the latter position would be very serious, but I suspect (currently) it's a minority view. But being criticised by parliament for incompetence is hardly something to stick on your CV & will surely add to pressure on him to stand down. I am kite-flying here, but it's a reasonable guess, I think, that James Murdoch can't come out of the committee's review within anything less than a further damaged reputation. If a dumbo like me can see this, so can an asset manager. So to give him the benefit of the doubt, and to vote for him, when you know this is a likely outcome seems rather irresponsible in my view.

Finally, note that the deckchairs are being shuffled, with Martin Gilbert apparently coming onto the board, and two others leaving. Gilbert would make a decent chair, and has done a good job at First Group, so maybe this is a medium-term plan? More surprising, when you think about it, is that the NEDs slotted to come off the board are not the News Corp reps. If two come off and Glibert plus one other join there is no change in the level of independent representation. Crispin Odey publicly said that the board needs more independence, though oddly not an independent chair, so why isn't he making more noise?

UPDATE: Actually I have been a doofus, one NED coming off is a News Corp rep.

BSkyB news

2011-11-16T07:55:00.002Z

There's a good round-up piece from The Grauniad here. What we know so far in terms of voting advice by shareholder groups is as follows:

ABI - Amber top, with role of chair flagged up
LAPFF - oppose James Murdoch's re-election, support SID's re-election
PIRC - oppose James Murdoch's re-election, plus other News Corp cross directors
Glass Lewis - oppose James Murdoch's re-election (? if Grauniad is right)

That means if ISS oppose or abstain on James Murdoch he will have failed to win the support of any shareholder advisory group. Not good for a FTSE100 chair.

Think carefully

2011-11-13T20:15:00.003Z

So, James Murdoch's latest brush with the select committee is over. What do we know? Well, he has stuck to his line that he was not shown, and did not ask to see, the "for Neville" email, Tom Crone's briefing note or the legal opinion that said there was a powerful case that there was a culture of illegal accessing of information.

It has gone curiously unremarked, except by Tom Crone, that James Murdoch's version of events has changed since July when he said he wasn't told about the email or the transcripts. Now he says he was, but wasn't told what they meant and didn't seek to find out more. He simply signed off a massive settlement for an unpublished story. And he never went back and reviewed any details of the case when the Guardian went large on it in July 2009.

More circumstantial evidence was provided by Tom Watson, who revealed that he has spoken to Neville Thurlbeck of "for Neville" fame. According to Watson, Thurlbeck was told by Crone before the key meeting with Colin Myler and James Murdoch, that he was going to have to show Murdoch the email. Thurlbeck asked Crone afterwards if he had shown Murdoch the email and he said yes. It's more evidence against Murdoch's version of events, but still not the killer punch.

Presumably emboldened by the fact that James Murdoch didn't just turn up and say "fair cop, it was me what done it", on Friday the senior independent director at BSkyB sent a letter out to shareholders setting out why the board had unanimously backed him as chair. It includes a defence of Murdoch's personal integrity. I sincerely hope the BSkyB board members know a lot more than they are letting on, because there are now some very serious rumours doing the rounds.

Since BSkyB's letter there have been two further important developments since then. First the Mail has run a story claiming that the police are likely to question Murdoch in relation to new email evidence. Notably the story has been covered, briefly, on the website of The Australian (a Murdoch title) with no denial from News Corp. In addition on Saturday night ex Murdoch editor Andrew "Brillo Pad" Neil tweeted that a source close to The Digger himself had told him that the emails referred to by the Mail could be "devastating" for James Murdoch. There was even an arrest rumour over the weekend when a Sky Business News Twitter account announced that James had been arrested. The tweet was quickly deleted and Sky said they had been hacked (no laughing at the back). Will reality imitate hoax in the coming days?

Secondly, The Guardian's Roy Gleenslade revealed in an interview on Saturday that an ex-Screws employee had told him all the current members of the DCMS committee had been tailed by private investigators and/or News of the World staff... earlier this year. (This is on top of News International titles previous hatchet jobs on the committee in 2009). We know the company's objective was in tailing the lawyers representing hacking victims - to try and discredit them professionally. Wonder what their objective was in tailing the DCMS committee members eh? (This is also on top of already tailing Tom Watson in 2009. He also revealed last week that he had been told by police that his computer may have been hacked.)

I have previously thought that the "fit and proper" test as applied to BSkyB was a low risk. I am starting to think again. If you look at what went on in News International, in particular the targeting of politicians who threatened News Corp's commercial interests, you have to think that Ofcom might focus on getting them to sell their stake down. Otherwise what does a company have to do to fail the test? Hacking phones, hacking computers, paying off cops, tailing commercial enemies - we know all this stuff happened. If that doesn't fail 'fit and proper' then presumably you really do need to be the mafia to fail the test....

Again it's worth repeating that the rumours out there should lead investors to conclude that there could be worse to come. Apparently a lot of people in media-land expect computer hacking to be big. You might also fancy a wager on The Sun closing, as the recent arrest of a veteran reporter over alleged payments to the police has apparently sent shockwaves through the paper. James Murdoch didn't take the opportunity offered last week to rush to the tabloid's defence. Closure is an outside chance, I'd say, but a chance now nonetheless.

Finally, again I think it is worth just asking the question about the possible overlap with BSkyB. Given that we know that News International employed subterfuge to try and undermine commercial threats, including members of parliament, is there any possibility that they may have done the same thing to defend their broadcast interests? I think this deserves some exploration. I imagine some people will recoil at even the suggestion, but this is an organisation that has routinely undershot low expectations.

To finish, I think if you are an institutional shareholder and you support James Murdoch's re-election as BSkyB chair you are now taking a risk. There really is no defence of ignorance if things take a turn for the worse, there have been plenty of warning signs. Think carefully before casting those votes.

Excellent union initiative on shareholder voting

2011-11-12T17:01:00.003Z

The latest initiative by the Committee on Workers' Capital is excellent. There are now three markets - US, UK and Canada - where TUs carry out annual analysis of asset manager voting. As far as I am aware they were the first people to do this in each market, for which the US unions in particular deserve great credit, having come up with the idea. Now the CWC, which brings together TU people interested in such things from around the world, has taken the logical next step and put out a global survey.

Here's the blurb:

The Global Unions Committee on Workers’ Capital (CWC) announces the publication of its report: Proxy Review 2011. The report encourages investors to take an active role in proxy voting oversight.

Proxy Review identifies trend-setting shareholder votes on social, environmental and corporate governance issues that are relevant for pension investors with global equity portfolios. The report includes key votes from: Australia, Canada, Spain, Switzerland, the United Kingdom and United States of America.

Shareholder voting is one of the primary means by which investors can influence a company’s operations. It is therefore important for shareholders to participate in the voting process. However, pension equity investments can span hundreds of companies and numerous countries. Add to this complexity, regulatory differences, conflict of interest problems, agency dilemmas and narrow interpretations of fiduciary duty, which all contribute to accountability gaps along the investment chains of pension funds. Recognizing these gaps, Proxy Review was created to serve as an accessible resource for pension trustees who would like to evaluate how key proxy votes in international portfolios were cast on their behalf.

Ken Georgetti, Chair of the CWC and President of the Canadian Labour Congress said, “At the height of the global financial crisis, institutional investors were accused of failing to actively oversee corporate governance and risk management practices at the companies they own. This report will help the pension fund trustees who invest workers’ retirement savings overcome barriers in exercising such oversight. As our Proxy Review project demonstrates, creating the opportunity for dialogue between trustees and their investment managers is one important way the Committee on Workers’ Capital is tackling serious accountability deficits within global investment chains.”

The selected key votes in Proxy Review 2011 focus on corporate governance issues, though environmental and social issues are also highlighted. Among the issues addressed are the independence of Board members, CEO succession planning, executive remuneration and compensation, pay-ratio disclosure, sustainability reporting and disclosure of policies on labour and human rights standards.

These votes were cast at major global companies that represent a wide range of industry sectors. Companies include: Rio Tinto, Barrick Gold, Banco Santander, Nestlé, Credit Suisse, Novartis, UBS, BP, Hewlett Packard, Apple, Chevron, Shell, JP Morgan Chase and Bank of America.

Nom comm reform

2011-11-09T20:27:00.003Z

I've blogged a bit recently about the importance of remuneration committee reform, and in particular the idea of opening up membership to employees. Of course another way of tackling this issue could be to go through nominations committees, and thus affect who ends up on boards. Notably this idea got a nod last week from Sir George Young in response to a question from Angela Eagle. See Hansard here, text below:

Finally, on executive pay, it is worth reminding the House that the average chief executive of a FTSE 100 company earned 47 times the amount earned by the average employee in 1998 and 115 times that amount in 2009, so the gap actually widened under the last Labour Government. I agree with the hon. Lady that there is an unsustainable disconnect between how our largest listed companies perform and the rewards that are on offer. Concern on that comes not just from Government, but from investors, business groups and others. We are considering ways to reform remuneration committees and to empower shareholders, for example by making shareholder votes on pay binding and ensuring that there is shareholder representation on nomination boards. We are consulting on a number of issues, but at the end of the day, it is up to shareholders rather than the Government to determine executive pay.

That looks like a bit of a score for Paul Myners, who has pushed the idea, along with Cevian, the asset manager he now works for.

Exec pay again

2011-11-06T19:42:00.002Z

OK, my tendency to obsess about one issue kicks in again, but it's worth keeping an eye on the executive pay debate.

There have been a few interesting developments of late. First up, David Cameron repeated his suggestion that it would be good if there were more women on remuneration committees, as it might dent executive pay. This is interesting because I'm not aware of any evidence that this might be the case (though very keen to hear if anyone knows otherwise) so it's an odd idea. It might make you think this may in part an attempt to tick the pro-women box now that Cameron's polling advantage there has disappeared, though it risks pandering to a rather patronising view of what greater board diversity would bring.

Personally I wonder if it is instead/also an attempt to avoid the rather more obvious idea of employees feeding into rem comm decision-making. I bet Tories instinctively HATE that idea, because it would a) acknowledge employees as a group, rather than a number of individuals and b) it would start to legitimise an employee role in governance. One of the great achievements on the New Right was atomisation, so people at work think more in individual terms, and less in a collective sense. I don't mean this in any kind of conspiratorial sense - people on the Right believe this is how people should think - but it's an achievement they don't want to lose. So safer to address rem comm reform it terms of individual progress and meritocratic advance than to have to give ground to notions of social partnership and all that entails.

There is some ground opening up here for Labour as many in the party would be actively enthusiastic about employee involvement in rem comms, so this could become a bit of a wedge issue, at least in my little corner of the world. Although asset managers and the investor representative bodies won't like it, there is definite interest in the idea that is starting to bubble up.

More generally there is also a sense that patience is running out. There are only so many times you can call on the executive class to exercise restraint and they stick two fingers up. There are only so many times you can urge asset managers to take a tougher line and they shrug their shoulder and say there's nothing much they can do about it. Of course we've been through all this before, and nothing has changed, so therefore shouldn't we just expect it to carry on? Well, maybe, but it was a former FTSE chief exec who said in a conversation recently that the position of executives taking ever more out of companies as their reward was analogous to the position of the unions in the 70s. People moaned for a long time about TU power before anything happened, but when change came it was very significant.

I now think that we could see some fairly radical reform in respect of executive pay, whether it happens under the Coalition or the next Labour govt in 2015 ;-) I suspect it will go significantly further than the policy positions adopted by most of the 'professional' governance bodies because most of them are still stuck parroting the disclosure+shareholder empowerment model (which hasn't worked very well). There has been an opportunity since the crisis to think very differently, our sector hasn't really done that. Don't be surprised if what we thought were the ground rules of the exec pay debate get overtaken by events.

A crunch point

2011-11-02T21:15:00.003Z

So, at the end of this month James Murdoch faces re-election as chair of BSkyB. I've been following the hacking stuff, and the shareholder reaction to it, since the summer. I think this month is the crunch point, in several ways.

First up, next week Murdoch is back in front of the DCMS committee. He will be quizzed, no doubt, both about what Tom Crone and Colin Myler have claimed about their meeting with him, about the separate meeting with Myler alone, about what Julian Pike said, and about the latest published evidence.

To be scrupulously fair, you can, just about, maintain an argument that James Murdoch didn't know in the summer of 2008 about the extent of hacking. He could have not understood the implications of the Taylor case, and why he was having to make a monster settlement over an unpublished story. Having got counsel's opinion (which clearly argued there was a culture of illegal hacking), he might not have asked Crone and Myler exactly what it said and/or they may not have told him. (Pike's phone notes get very close to this issue, but don't quite prove anything). He could have just missed the point of what was going on. I find that version of events very hard to believe, but I suspect it is the version that he will continue to propagate and which, unfortunately, I reckon the likes of Louise Mensch will buy.

Even if you accept that version of events though, you have to question at what point he became aware that something was up. Did he never return to the Taylor settlement mentally? Not even when The Guardian blew it open in July 2009? Again I find it very hard to accept. At least bythat point alarm bells should have been ringing, surely.

But even if you accept that what had happened didn't dawn on him till much later, you surely have to conclude that, if he wasn't covering up what was going on, his oversight was awful. If this had been dealt with much earlier it is quite possible, for example, that the BSkyB bid would have gone through. That was a major strategic ambition for News Corp, and it cost them millions in break fees, with about £15m in fees incurred by BSkyB (plus a few million in retention awards). If he had cleared up the mess in News International earlier all this might have been avoided. Instead he missed it (on a sympathetic reading of events) and did damage to both companies. That would be enough to lose your job if you had a different surname.

Non-Murdoch investors have made their feelings pretty clear at News Corp, by voting heavily against James Murdoch last month. I think they need to do the same at BSkyB. My own view is that he has misled parliament about his knowledge of hacking, but even if you don't share that view his failure to spot and deal with the issue shows extremely poor oversight. In addition, what does BSkyB derive from having such a compromised and non-independent chair? It's hard to see good arguments in favour.

Therefore I think this re-election is a crunch point for institutional investors too. Understandably there are already journos sniffing around trying to get a sense of how the vote will go, therefore there is likely to be significant scrutiny of voting decisions. I struggle to see how a vote in favour of his re-election, or an abstention, is justified by events, and there is no defence of being unaware of what the issues are. This is a real test of how seriously investors take their responsibilities - let's hope they don't flunk it.

High pay saboteurs

2011-10-29T22:43:00.002Z

A hunt saboteur once told me a story a fellow sab had told them about how their approach to a hunt changed over time. When this sab first went out, he looked out for for the mounted field. He soon realised that they essentially just follow the actual business along, so he began to look for where the hounds were. And eventually he realised that, if he wanted to be effective in actually sabbing the hunt, he needed to look for the fox, and respond to that.

Incidentally, the sab also told me that once you got used to looking for the fox it was tempting to point it out to a fellow sab, but this was actually a bad thing to do, because someone from the hunt might see you and that would help them locate the fox. Another step on from this, I guess, is to point in a different direction to the where you know the fox is.

Anyway, recently this hunt sabbing story came back to me when I was thinking about executive pay. It strikes me that we are at the point where a lot of people in the policy world still have their eyes on the equivalent of the wrong bit of the hunt. As I've repeated regularly lately, I think we need to be honest about the limitations of shareholder engagement in respect of executive pay. Plenty of corp gov people are feeling pretty jaded about exec pay, not just the amount of their time it takes up, but also their inability to put much of a dent in the upwards trend. Despite this, it is a common retort from policy types when something like the IDS report comes out that we need more shareholder activism. I don't disagree, but this is only part of the story.

As I have again said quite often recently, remuneration committee reform strikes me as the most fruitful territory, though it needs thinking through. It is not popular, there is a lot of unthinking resistance to the idea of employee representation, for instance. In part I think it's force of habit, as we are essentially trying to teach people look at another part of the hunt, which may well have more importance, and changing our ways of thinking can be tough work.

It is striking too that increasingly people on the Right talk up shareholder activism when discussing executive pay. Probably it results from the same force of habit. But I also wonder if in some cases this is the equivalent of making sure they don't point to the fox. Greater employee influence within a business may have more impact on executive pay than improving disclosure to shareholders and/or retooling their powers. Maybe, therefore, it makes sense to keep talking up the shareholder oversight model, and suggesting further reforms to strengthen it, lest attention wander elsewhere.

Because if people on the Left are starting to think strategically about what is else is to play for when looking at corporate governance reforms to address executive pay, shouldn't we assume the same is true of the Right?

Exec pay rises, no surprises

2011-10-28T06:53:00.003Z

Latest figures from IDS out this morning show that FTSE100 directors total earnings went up by an average of 49% in the past year. The median is a less racy 16%, but still way, way ahead of what the rest of the population can expect. Is anyone surprised by this? I'm not. I'm well past the point of expecting to see any self-restraint.

The IDS figures will be based on public disclosures in annual reports, which in turn will have been seen by shareholders, who voted on the remuneration reports contain therein. And I think I'm right in saying that the number of FTSE100 remuneration reports defeated this year is zero. As it was last year. You have to go back to 2009 to find a defeat, two in fact - RBS and Shell.

We did some analysis at work of voting in the FTSE100 in 2010, based on asset managers' public voting disclosures. Five managers - all big ones - supported 90%+ of the remuneration reports on which they voted. That is part of the story - most remuneration reports get passed with thumping majorities because many institutions still vote for the large majority of them.

So if shareholders aren't effective enough on their own as a restraining force we need to bolster the system elsewhere. Rem comm reform is the obvious next place to go - address the decisions that shareholders have to take a view on.

News Corp results

2011-10-26T07:10:00.000Z

Everyone will have seen these by now, but to recap James Murdoch topped the poll as the director non-Murdoch shareholders would most like to eject, closely followed by Lachlan. The votes against were 35% and 34% respectively, a fair bit higher than the working assumption of about 25% against and, importantly, a majority of the independent votes.

As I have written before, now the News Corp AGM is over and done with I think that pressure for change will come from a number of sources. I hope investors go back to News Corp on the back of the AGM results and continue to push for change. The board has given out the message that it still thinks, for example, that a combined chair/CEO is appropriate so they aren't going to roll over.

In the near future we have James Murdoch in front of the DCMS committee on 10th Nov, and facing re-election as BSkyB chair on 29th Nov. I expect he'll be in for a pretty rough month, as even BSkyB investors are losing faith with him. Also expect to see more hacking developments break in the press. The Indy has clearly got some good lines in as evidenced by this morning's scoop on 'the Hub' - a mobile phone just used for hacking that was kept.... in the NOTW newsroom. ie it wasn't hacking by proxy via Mulcaire etc.

There are quite a few disgruntled NI people now out of work. Especially when they have been given an unceremonial heave-ho, what incentive doe they have to keep quiet now? So I reckon we can expect more to come out.

Personally speaking, I intend to blog about other subjects again soon!

News Corp AGM

2011-10-22T19:33:00.002Z

So, after all the fighting, the News Corp directors were re-elected as expected. But what we still don't know is exactly what the results of the meeting were. According to an official statement bunged out on Friday PM, the results won't be made available until Monday.

Obviously the company knows the result, and will have known it for a few days. Delaying the release of the actual results suggests that we might have had some high votes against some directors. As one journo I spoke to yesterday pointed out, it's an odd PR move as this creates another story on Monday. Could be very interesting.

Meanwhile attention will turn to the BSkyB AGM, which is rapidly approaching. I am now of the view that if non-News Corp shareholders re-elect the current chair they will have made a major mistake. I would just about argue that there is a fiduciary issue here. There is enough information in the public domain to raise big questions about his continued position on the board (see Julian Pike testimony to DCMS committee for latest twist). Voting to re-elect him as chair must in turn put the spotlight on whether investors have really done their homework.

Where News Corp goes next

2011-10-18T11:36:00.003Z

Though its AGM is fast approaching, I think we can safely say that what happens to News Corp will largely not be determined by its (non-Murdoch) shareholders. Not directly at least. As is well known, despite holding an minority smallish chunk of News Corp's shares, Murdoch Snr has the whip hand in terms of voting rights. Add in some friendly faces, and knowing the passivity of many asset managers, and no-one really expects any directors to lose their seats on Friday.

The global shareholder opposition to the existing News Corp board is truly impressive, and a rarity. I know from experience how difficult it is to get investors both on the same page, and willing to take a public position on the need for reform. In that sense I struggle to think of a similar case to the forthcoming AGM. There will be some very big votes against News Corp directors and, if I were a betting man, I would say that James Murdoch will take the biggest hit (he is the one director everyone seems to be voting against).

But let's be clear how we got here, and where things are likely to go. Essentially News Corp has been undone by the efforts of investigative journalism, a few key politicians and some celebrities. Shareholders have come late to the party and many don't seem to have followed developments closely (hence I think a few have been very shocked and, no doubt, will be again in future). Shareholder pressure has developed as a further source of pain for News Corp once the initial blows had been landed.

Looking ahead, I suspect that the key players in deciding News Corp's fate will be a mixture of politicians, regulators, rival media, whistleblowers and law firms. Post-AGM shareholders will probably find they exercise the most influence via the last group, but I suspect they will largely play a supporting role. So let's examine who might cause problems for News Corp and why.

1. Politicians. There are a number of political interests here. First up the Coalition knows that allowing a revised News Corp bid for BSkyB to go through would look rather bad. So they don't have much to gain by letting News Corp have an easy ride. Add to this that, so far, Ed's one major success has been the way he called the hacking scandal and you can bet he will continue to try and push Cameron hard on this. And let's not forget the DCMS committee. At some point it's going to publish a report on hacking. That is bound to include some commentary on News Corp's governance, and some of the key individuals who are still there. A critical perspective could put an awful lot of pressure on.

2. Ofcom. It essentially has a watching brief on 'fit and proper' as it applies to BSkyB's licence which can include taking account of the behaviour of News Corp. So if the DCMS committee report comes out very critical this could be an important factor. The role of the current BSkyB chair sticks out like a sore thumb I think.

3. I would keep watching The Guardian and, increasingly, The Indie. Both have turned up a lot of info that has fed investigations into hacking. Last week's Nick Davies' piece on the WSJ pumping up its circulation figures shows that they are starting to look at whether other parts of the Murdoch empire are infected. I imagine that computer hacking, which a) a lot of people expect to be the next element of the scandal and b) is the subject of its own police investigation, will be the subject of some coverage.

4. Whistleblowers (though perhaps this is too grand a term). As Tom Crone and Colin Myler's decision to openly and publicly contradict James Murdoch's version of events shows, there are some disaffected former employees now on the prowl. Some clearly feel they have been let down by the company they worked for, and as such News Corp can no longer rely on them to keep quiet. This could result in further damaging revelations.

5. Law firms. Add wrongdoing to cover-up to misleading public statements and legal firms who work on behalf of shareholders will get interested. This could be quite a big deal.

So in all of this shareholder pressure may play a relatively minor part. I make this point for a couple of reasons. First because what has happened at News International for sure, and perhaps elsewhere in News Corp, represents a major scandal. If shareholders can't really make much headway in a case like this (in part because of the way News Corp's share ownership is structured) don't get your hopes up about the prospects for shareholder engagement where the rights and wrongs are less clear cut.

Second, because in reality it has always been like this. In the real world holding companies to account for poor behaviour has always required a range of stakeholders putting on pressure - shareholders cannot usually do it alone. This is important when thinking about shareholder engagement in a public policy context, where it is sometimes held out as a non-statist 'solution' to various problems of corporate behaviour. Or to look at it from the other direction the primacy granted to shareholders in governance is sometimes held out (mainly by the Right) as a reason why government/regulators etc should not and need not stick their noses in.

Therefore my conclusion from my experience to date with News Corp is that it demonstrates the need to try and form effective coalitions, but coalitions that go beyond the investor community alone.

OccupyPeckham!!!

2011-10-16T11:52:00.003Z

Only kidding, but I thought I should contribute some wordage on the 'Occupy' movement. It is safe to say that the attitude of most Labour supporters is cautious, if not hostile. Cautious in the sense that lots of people with long memories will have seen similar 'popular' movements come and go without any lasting impact. Cautious too because it is clear that, unlike much of the anti-cuts 'movement', such as it is, these 'Occupy' types seem to come from a bit of the Left that doesn't have much faith in Labour.

Clearly some Labour supporters are more than cautious, they actively dislike the 'Occupy' movement. This, I think, is principally a fear of contagion from associating with what looks like it might be a 'far Left' protest. Plus they don't like the idea of Labour being linked with anything that looks 'anti-rich'. Sadly, there is a strain of "protests are a waste of time" thinking lurking in there too. I'm a bit of a pessimist myself, but find the fact that we apparently have such low expectations of politics outside the official channels a bit depressing.

If I'm honest, I share a lot of the scepticism I hear from other Labour supporters. This looks a bit too much like the wave of anti-globalisation protests in the 90s and early 2000s for my liking. Not just the incoherence in terms of objectives, but also the make-up of the movement. And yet, despite all this, I think there is something worthwhile here.

Incoherent they may be, but the movement has articulated points that surely most of us Labour supporters believe. The finance sector does have too much political power, and it is unaccountable, and the public at large is having to pay for the failures of this part of the private sector. This all comes with huge caveats - clearly very few people in the finance sector caused the financial crisis, entire bits of it were not culpable. Equally, we can't overlook the fact that politicians, even our own mob, have their fingerprints on this mess too. But the core idea that motivates these protests is seems to me basically not a bad one.

This is an era when our opponents on the radical Right are trying to reframe the financial crisis as a failure, even crime, of the state and/or politicians. I have heard senior people in the investment industry - the sort of people whose views carry weight in my corner of the world - come out with a version of the financial crisis where almost all the blame lies with politicians and regulators. Therefore to me it seems tactically stupid to not at least offer some words of encouragement to those who tell what, I think, is a more truthful version of events.

Plenty of folks on the Left have openly pondered why there has been no populist left-of-centre reaction to the financial crisis, instead it seems to have benefited the Right. What we are seeing with 'Occupy' looks like an attempt to kick off such a populist campaign, yet we seem to be uncomfortable with what we are looking at, perhaps in part because they are not 'our kind of Left'*. Perhaps the protests will fizzle out, my own view is that they probably will, but then I thought the US protests would have evaporated by now. But if the movement does blow away with the next wind perhaps that will be because people who basically share the same underlying concerns, but are suspicious of those articulating them, stand aloof.

Let's be honest about our own lack of knowledge too. There will be people within Labour who argue against the 'Occupy' protests as 'unrealistic' or 'ill-informed' or whatever, who have no greater knowledge of the City than those camped out at St Pauls. There are plenty of people who actually work in the City whose views about it are significantly more radical than moderate Labour types. It's partly because they know where the bodies are buried, no doubt, but it's a useful corrective nonetheless. There is a lot to be critical of and what needs changing is not necessarily easy to articulate, so perhaps exactly what we need right now is a simplistic populist message that gets the right basic point across.

You won't find me up at Paternoster Square any time soon. Quite apart from the fact that I think it's a slightly silly target (why the stockmarket? and few people even know what the 'new' stock exchange building looks like), I don't have the free time to camp out at a protest and, to be honest, I am put off by the fact that it looks a bit green/crusty/anti-globalisation so far. But in my heart of hearts I can't help but hope this message begins cut through because, basically, I think it needs to be heard.

* It appears that the original idea may have come from the Adbusters group.

News Corp news - Calpers

2011-10-16T08:16:00.002Z

It's pretty much a clean sweep from investors so far. Any more to come? European public funds perhaps? Anyway, here's Calpers:

(Reuters) - Calpers, the biggest U.S. public pension fund, said on Friday it would withhold its votes for the reelection of Rupert Murdoch and sons James and Lachlan to the News Corp board of directors.

The California Public Employees' Retirement System, best known as Calpers, also said in a statement that it would withhold votes for Arthur Siskind and Andrew Knight in protest of the dual class voting structure at the company.
The pension fund said it aims to "rejuvenate" the News Corp board with new independent directors.
Calpers owns approximately 1.45 million News Corp shares.
Also on Friday, Hermes Equity Ownership Services, the shareholder advisory service affiliated with Britain's largest pension fund, urged investors to vote against the reelection of all Murdoch family members, Siskind and Knight.
The annual general meeting of the media group, under fire for a phone hacking scandal, is scheduled for on October 21.

News Corp news - Hermes opposes Murdochs

2011-10-14T13:00:00.001Z

Good round-up from The Grauniad here. Bit on Hermes position below.

Hermes Equity Ownership Services (Hermes EOS) is the latest shareholder advisory service to advise its clients not to support all the members of the News Corp board at the annual meeting on 21 October in Los Angeles.
Hermes EOS, linked to the old BT pension fund, said on Friday it had stepped up its discussions – or "engagement" as it is known in the corporate governance world – with the media company since the phone-hacking allegations.
Explaining Hermes EOS's decision to withhold support from five directors - Rupert Murdoch, James Murdoch, Lachlan Murdoch, Arthur Siskind and Andrew Knight - Jennifer Walmsley, director of Hermes EOS, said:
News Corp has not reacted with sufficient urgency to investor concerns about its board composition and corporate culture. The time is right for the company to appoint an independent chairman to rebuild trust, help correct the governance discount, and ensure that the interests of all investors are properly represented.

Misys remuneration revolt

2011-10-12T13:06:00.000Z

Dunno how I missed this (pdf). I'm always a bit sceptical when larger companies' RNS statements on AGM results simply say that 'all resolutions put to the meeting were passed', and this is a good example why. Technically 100% accurate, but disguises a 37.5% vote against the remuneration report, which will put the company amongst this year's outliers.

UPDATE: Actually to be fair, having checked, Misys took the same approach to their AGM statement last year.

News Corp news - ISS recommendations

2011-10-10T17:50:00.001Z

And it's not getting any better for News Corp...

Investor adviser Institutional Shareholder Services said owners of News Corp. stock should vote against 13 of the media company’s 15 directors, including CEO Rupert Murdoch and his sons, in light of the phone-hacking scandal at the company’s former News of the World tabloid.

ISS, which advises institutional shareholders on corporate-voting matters, said the phone-hacking scandal “laid bare a striking lack of stewardship and failure of independence” of News Corp.’s board, according to an executive summary of the report released Monday by ISS.

News Corp. owns The Wall Street Journal.

The company said it “strongly disagrees” with the ISS voting recommendations. “The company takes the issues surrounding News of the World seriously and is working hard to resolve them, however ISS’s disproportionate focus on these issues is misguided and a disservice to our stockholders,” News Corp. said in a statement.

News Corp.’s 15 directors are standing for election at a shareholder meeting Oct. 21 in Los Angeles. The two News Corp. directors that received ISS’s support are Joel Klein, a News Corp. executive, and venture capitalist Jim Breyer. They are newly appointed to the board.

Amid questions about the oversight of News Corp.’s board, Rupert Murdoch in August said the media-and-entertainment company’s board is “very strong.”

News Corp news - Glass Lewis recommendations

2011-10-09T14:28:00.004Z

Picked this up over the weekend, Glass Lewis (a big proxy adviser influential in the US market) has put its report on News Corp out. Not good reading for James Murdoch (or Lachlan). Next up will be ISS presumably. If they come out against JM things could get interesting. The digger can account for 40% of the votes, plus he has some investor allies, so it's very unlikely a director will be unseated. But I think we'll see some big votes against this year.

LAPFF statement on News Corp

2011-10-06T13:29:00.003Z

Here it is:

Pension funds want a line drawn under hacking scandal

News Corp can only move on from the hacking scandal if it overhauls its board structure in the wake of the phone hacking scandal, according to the UK’s leading shareholder activist body.

The Local Authority Pension Fund Forum (LAPFF), whose 54 members have combined assets of £100bn, has issued a voting alert to its members this week on News Corp. Having undertaken extensive research into the phone-hacking scandal, and having engaged with News Corp directly, LAPFF has reached the view that board change is necessary. The Forum believes that lead director Rod Eddington is well placed to take this process further.

Although LAPFF would have preferred to see a fully independent process put in place, the Forum has also taken the view that Viet Dinh’s internal review in response to the hacking scandal must be given time to reach its conclusions.

Therefore LAPFF has recommended that its members vote for the election of Rod Eddington and Viet Dinh. LAPFF has also recommended a vote in favour of Andrew Knight, who has also played a positive role in engaging with the Forum.

The Forum believes that the News Corp board must take responsibility for the hacking scandal and that this would be best achieved by a change to its existing membership and structure. LAPFF believes that James Murdoch’s continued presence on the News Corp board is causing significant reputational damage to the company and is no longer in shareholders’ interest. The Forum has therefore recommended that its members oppose James Murdoch’s election.

LAPFF also wishes to see a separation of powers at the head of the company, and the appointment of a genuinely independent chair. The Forum has recommended that its members oppose the election of Rupert Murdoch, who currently holds the combined roles of chair and chief executive.

Forum chairman Ian Greenwood said: “News Corp and its shareholders desperately want to draw a line under this scandal, but that will only be possible if the board accepts the need to demonstrate real accountability. That requires a change in the structure and the make-up of the board. Whilst these are difficult issues for the company to address, we believe that to secure News Corp’s long-term future such reform is necessary.”

ENDS

News Corp news part 1

2011-10-06T06:59:00.003Z

Some more hacking-related news, before I get stuck into investor developments.

1. An interesting bit in The Grauniad about the current state of play on hacking claims. Note that Mark Lewis (the guy who represented Gordon Taylor) says that News Corp may not have put aside enough to cover all the potential claims.

2. Incredible, but it does look like Sarah Payne's voicemail was indeed hacked. I don't think this will be the worst to come out either.

3. Kelvin Mackenzie's phone was hacked too. Yeah, I know, boo hoo hoo. But the interesting bit in the Speccie piece is this:

"I had always believed that the pin codes of mobiles were 0000 or 1111 and that’s why it was so easy to crack. But no. In my case it was something like 367549V27418. That surely must kill the idea that the hackers guessed or blagged the number — they must have had inside help from the phone networks. "

4. Actually BSkyB news, but this bit in the Standard was interesting. Has the AGM date been shifted to fit around JM returning to the DCMS committee? And if so, can anyone think of a precedent for this?

The FSA and corporate governance

2011-10-05T12:15:00.004Z

Have to say I find this a bit surprising. It's not an isolated example either. It immediately makes me think that those in the UK investor community worried about the EC's possible tilt away from 'comply or explain' may be looking in the wrong place for a fight.

I think this is indicative of a much wider trende. I have been saying for a while that the likely outcome of the failure of market oversight of financial institutions would be a shift to a more regulatory approach to governance. The fact that the FSA is engaging with a bank to get it to strengthen its board is a good example of what we may begin to see more of. I'm also interested in whether/how the FSA communications concerns to investors.

Anyway, looks like the first bit of practical evidence for the regulatory turn and it's happening in our own backyard. People in the UK investment community love nothing better than moaning about ill-informed European civil servants mucking everything up, and latterly this has included corporate governance. I'm starting to wonder if that says more about their own politics than what is really going on here.

News Corp news

2011-10-03T19:15:00.002Z

Thought I should keep track of any investor related news on News Corp and phone hacking. I'm sure most people already know about ACSI, but in case you missed it, here is their statement from last week. They have recommended voting against -

Andrew Knight
Arthur Siskind
James Murdoch
Lachlan Murdoch
David De Voe
Natalie Bancroft

I'll put up any similar statements as they come out. US public sector funds may say something for instance.

Two plugs

2011-09-29T07:18:00.000Z

1. Stephen Beer's Fabian pamplet on Labour and economic credibility is worth a read. Good section on how Labour relates to the City.

2. New blog alert! A very well written blog by a young Labour supporter here - www.guardianistainspalding.blogspot.com (Blogger being irritating so can't link directly).

Heffer's law: executive pay

2011-09-28T13:07:00.001Z

Perhaps the clearest sign yet that shareholder oversight alone is not enough to rein in executive pay - Simon Heffer thinks it is:

And it is hard to disagree with him about the inflated salaries paid to senior executives and city financiers that are in some cases no way proportionate to the risks they take or the money they earn for their companies.

Yet would this problem be solved by putting a worker on the remuneration committee of every company? Of course not.

The people who would be most useful in keeping pay down, and who have both a legal and a moral right already to do so, are that company’s shareholders. It is the value they hold in the company that is destroyed if executives are overpaid, and it is in their interests to see that it doesn’t happen.

Leader's speech, simple points

2011-09-28T12:27:00.004Z

1. Ed does not have the X-Factor, as is obvious to anyone being honest with themself. You can argue that it doesn't really matter, but thems the breaks.

2. The delivery was very earnest, the jokes were a bit lame (apart from one decent Clegg jibe, but that's shooting fish in a barrel), and the speech was too long.

3. There was a LOT on business responsibility. Personally I find this stuff very interesting, I'm not sure the punters do. And Ed can't really be surprised by the reaction.

4. There were some genuinely good lines in there. I found the line about the rungs on the ladder getting further apart very resonant. Also good line about the Tories only see CEOs as 'wealth creators' - though I would have given a nod to the public sector here too. The can't trust the Tories line worked very well too.

5. This was quite an 'ambitious' speech, suggesting as it did that we need to make a significant break with the recent past. But I am not at all sure that this is a) a message the public is receptive to or b) that we can really pull off. Maybe I'm not ambitious enough.

6. I voted for the other brother, and still think he was the better choice. But I wish our Blairite colleagues would shut the fcuk up for at least a grace period. There is a time for open and honest reflection on our leader's qualities, but I would politely suggest that this isn't in public immediately after his conference speech.

Rem comm reform

2011-09-27T17:51:00.004Z

Well, I was there, I heard Ed say we should have employee representation on all company remuneration committees. This goes further, I think, than what he has previously said publicly. Coincidentally, it was also the one policy that two panellists in the fringe meeting I was chairing on corporate governance etc said they would want to hear in the leader's speech.

As I've said previously, I do think this would be a valuable reform, as I believe it could have an impact on actual decision-making. I won't reiterate previous posts, but if you buy the Sunstein argument about dissenting voices breaking up a reinforcing tendency in groups of similar views, this looks like a decent policy proposal. Decent, that is, if you believe that there is a problem with executive pay, which is not necessarily the case for some of the more Blairite end of the party.

The other thing this reform would likely do is open up a wider debate about shareholder primacy in corporate governance. Again, you may or may not think this is a good thing. But it would certainly pose deeper questions which, as is no doubt obvious, I think are worth giving serious thought to.

Two further questions. First, where as this idea come from? I'm fairly familiar with which organisations have championed this reform, and I don't think it's a question of, for example, the TUC simply convincing Ed's team. Maybe I'm wrong. But if not then this suggests that some people around Ed believe it's simply a good idea in it's own right. What we need to do now I think is move on from an argument based on the right of representation to one based on evidence of decision-making and outcomes. Apparently there is some out there.

Second, is there any chance of this becoming real live policy? Well I'm a bit more optimistic now. After all this idea is included in the BIS discussion paper on exec pay. The yellow half of the Coalition may therefore be keen to push this as a left-ish policy win. Therefore if Labour keeps pushing on it we may indeed see some movement.

I an imagine the dread felt by some Labour supporters about proposing 'workers on the board'. But a) I suspect that, like everything, the noise expended attacking it will be massively disproportional to the actual impact on companies and b) if they don't think it's a good idea and they do think there is a problem with exec pay, what are they proposing instead. I think we've given the disclosure+shareholder empowerment+Market oversight approach a decent try now. It doesn't seem to work very well.

Bits, bobs & bye

2011-09-18T20:51:00.003Z

I'm off on holiday for a week tomorrow, so posting will be non-existent.

A few things before I go. Remember the story in Alistair Darling's book about the banker threatening not to buy bonds (think I've got that right)? Apparently it was Jamie Dimon of JP Morgan Chase. Bizarrely this is the bank that has also slung some serious wedge at a certain former Labour Prime Minister.

Secondly, worth noting that the 'Nudge' unit has published a report on activities which garnered some positive FT coverage (Hat-tip MC). From what my chum tells me, the unit isn't held in particularly high regard by senior officials, so this might be a bit of defensive spin. I expect the biggest success of 'nudging' to be NEST. But that was in place before the Coalition. However changes to rules on organ donations (you will now have to state what you want to do, so it falls short of a NEST-style opt-out) should make a difference I reckon.

Finally, lots of noise from Vince Cable on pay today, but check Sky man Mark Kleineman's tweets here. Disclosure of pay ratios may be off the table, but further action on clawback possible. He says the expected BIS discussion doc on exec pay is about to appear. He got all the details early of the first stab at short-termism by BIS, so he's probably been well briefed.

And that's that...

BSkyB AGM

2011-09-17T19:51:00.004Z

for those interested in such things, it will take place on 29th November, and the whole board is expected to be up for election, meaning that investors get to vote on James Murdoch as chair.

From what I've read recently it appears that Murdoch will be back in front of the DCMS committee before the AGM. Presumably the company will expect him to do a good job, but that meeting with Crone and Myler will be a key issue. I think opinions on this one have probably hardened, you either believe Murdoch's version or you don't. I don't, and I think Crone and Myler were pretty clear that Murdoch did indeed know. I would also urge people to consider News International's 'truthiness' track record on hacking when making up their mind.

I can't think of another example of a FTSE100 chair accused of this kind of thing and being called back in front of a Parliamentary committee because former colleagues have disputed their testimony. This is pretty serious stuff, so investors need to wake up.

Specifically BSkyB shareholders should consider a couple of further points. First, is Murdoch is fulfilling his role in contributing to the company's standing and image (read Sky's Corp gov memorandum on this)? Second, bear in mind that the company has already undertaken an internal review because of the hacking scandal, see bit below from FT last month. This is a clear link between what happened at News Intl under Murdoch's watch and reputational risk at the company of which he is chair. In what other FTSE100 company do they have to do an internal review because of what their chair has been up to at another company?

'No suggestion of impropriety’ at Sky News
By Salamander Davoudi

The board of British Sky Broadcasting ordered a review into editorial practices at its subsidiary Sky News last month following the phone-hacking scandal that is tearing through Rupert Murdoch’s News Corp, the broadcaster’s largest shareholder.
The three-week probe was carried out by BSkyB’s internal audit and risk management team and looked specifically at the news organisation’s financial records and how editorial money had been spent.
“There has been no suggestion of any impropriety at Sky News and we remain committed to the highest standards,” a spokesman for the company said.
News Corp owns 39.1 per cent of BSkyB as well as a stable of newspapers in its UK subsidiary News International, including the Sun and the Times. NI’s titles represent more than 40 per cent of the national market.
“One of the reasons this review at Sky News was seen to be absolutely necessary was because of the connection with James Murdoch,” said one media observer. “As current chairman of BSkyB and executive chairman of News International, if something horrid cropped up at Sky there would simply be no happy outcome.”
The report, which was delivered to the audit committee of the main BSkyB board, was understood to have found no cause for concern.
The fallout from the phone-hacking scandal has reverberated across News Corp and hobbled Mr Murdoch’s UK operations. The media group withdrew its proposed £8.3bn ($13.5bn) bid to take full control of BSkyB and closed its tabloid paper the News of the World.
James Murdoch has won unanimous support from the BSkyB board to remain as chairman but his continued presence, as he tries to control the damage to News Corp’s reputation from the scandal, has split shareholders. Last month one influential investor described his decision to remain as “extraordinary”.

Our lot should be better

2011-09-16T21:07:00.005Z

A few things lately have made me think about standards on the Left. The recent attacks on Sir Stuart Bell seem to have been somewhat inaccurate and overdone, but nonetheless I don't think a Labour MP should ever be in the position of being accused of not being contactable and not holding surgeries.

I felt the same way about the expenses stuff. People that broke the law should be punished, no doubt, but what bothered me more was that quite a lot seemed willing to push the rules a bit. I know MPs work very hard, but they are NOT badly paid by UK standards. To be blunt, I don't give a fuck what Tory and Lib Dem MPs do, I want to know that Labour MPs are better than this.

Ditto Hari-gate. I don't care what the Right say about him, they've got their own crop of idiot columnists and are welcome to them, but Hari went very badly wrong and we on the Left should expect better. Again, I don't really care about his specific perspective (I've never rated the guy) and I find the barely disguised glee at his downfall amongst some on the more Blairite end of the spectrum depressing. But he's on the Left, and seeks to speak for it, he should know better. A lot better.

And actually let's not forget Mr Tony Blair. Shouldn't we also expect [goes all Kinnock] a former Labour Prime Minister to turn down very highly paid consultancy from investment banks? It's not anti-aspiration, it's about remembering where you came from, and who you are supposed to speak for. Investment bankers don't need advocacy, and certainly not from former Labour PMs.

None of us are angels, we are all flawed. But surely none of us on the Left want this to become an excuse for poor standards on our side. Every time we put our cross in the box next to Labour, renew our membership etc, it's partly an act of faith that our lot have some integrity. In an anti-politics age, shouldn't we be able to expect that our lot aspire to something better, and try and live out our ideals in practice a bit?

I hate the cynicism about politics that is prevalent at present, but I think the best way to deal with it is by demonstrating why our lot are better, even just a bit better, than the others. Threat by example and all that. And if our representatives try a bit harder, maybe those of us in the ranks will try a bit harder too.

So, James Murdoch

2011-09-14T19:33:00.003Z

Are there any other examples of FTSE100 chairs being recalled before parliament because their former colleagues explicitly queried their previous evidence? Don't think this happened with the banks for example, though there was an exchange of letters over Fred Goodwin's pension!

Anyway, I think we might conclude that the only reason he still has his News Corp and BSkyB jobs is his surname. I told you he was a wrong 'un.

Bondholder activism... Or not

2011-09-14T19:14:00.002Z

I was at the ICGN conference for a bit this week. It was one of the most boring conferences I have ever been to, and I'm sad enough to generally fund this stuff interesting. I think it was partly that it wasn't really clear who the event was designed for. Like many conferences in this sector, asset manager delegates are far more numerous than asset owners. Also my own view is that it has tilted to far to the corporate agenda. So does not even feel like an event for fairly mainstream investors with an interest in Corp gov.

That said there were some interesting snippets in there - and I say this as someone who voluntarily chose to go to breakout sessions on bonds and accounting standards (the latter is actually really interesting, but I don't usually sa that publicly). The bonds session started slowly but had some good bits to it. I'm personally still a bit sceptical about what you can do in this area, but since a lot of asset owners hold a lot of fixed income it seems worth a try.

And having sat through the session I'm still a bit sceptical about what you can do, though it's something I plan to take more of a look at. Just a few random thoughts. It seemed to be a fairly commonly held view that the interests of bondholders amd shareholders were likely to be in conflict in many situations. One of the speakers argued that whilst shareholders might want to be activists, bondholders were 'stabilists'. He also made the point that the creation ofvcredit default swaps meant that the need for bondholder oversight was reduced further. And whilst there were cases of bondholders seeking governance guarantees, the real action seemed to be around the covenant.

It's fair to say to that contributions from the floor were somewhat sceptical too, and given that they came from some pretty senior figures this added a bit of weight to them. I did note that it's possible that the FRC may tweak the Stewardship Code to refer to other asset classes, though I wasn't clear why, given the preceding comments.

So, all in all, not convincing. Yet.

A few thoughts on 50p

2011-09-08T19:20:00.003Z

Given that there is quite a bit of commentary about the top rate of tax knocking about, I thought I would pitch in my own random thoughts.

1. I realise that I have lost any emotional attachment to high rates of tax for high earners for their own sake. There was a time when even if I heard a convincing argument for cutting top rate tax my emotional reaction would kick in and ensure I either didn't think about it too much (and thus might need to change my view) or give me a spur to find a counter argument. For whatever reason, and I'm geniunely not sure why, I don't have that reaction now. I could be convinced to cut taxes at the top end.

2. But I don't find the arguments advanced so far for cutting the top rate convincing. I don't believe current rates act as a major disincentive, nor do I think therefore they impede growth. What's more, in common with others, I find the attention focused on the 'burden' on the 'wealth creators' rather irritating. It sends out the messages that a nation of 60 odd million is hugely dependent on the magical talent of a few thousand.

3. Unfortunately, however, the current system does mean that we raise a lot of a relatively small number, and if a fair chunk did decide to emigrate it would leave a hole. It's a big if, given the failure of a threatened tax exodus* to materialise on numerous occasions, but we should consider the possibility. But then doesn't that actually suggest we might want to try a combo of a lower rate but kicking in lower? Just a thought.

4. If the new top rate doesn't raise much, isn't that more an argument for closing down loopholes than anything else? If my tax rate was put up I would simply end up paying it, I've never really understood how/why it us that people earning a lot more than me are able to avoid this.

5. Let's be honest - there was a huge dollop of politics in introducing the 50p rate in the first place. It is already proving it's value in that respect, as the Tories give the impression of genuinely not knowing what to do. It's a bit enjoyable to watch, but not really how we should decide tax policy.

* movement of ok yah people

Getting away with it

2011-09-08T07:54:00.002Z

Great blog from Faisal Islam here. Some crazy stuff from Darling's book:

The stuff about bankers is far far more important and of direct relevance today, as our politicians could launch the biggest shake-up of Britain’s banking system in decades. Darling was, after all, the man who signed the cheques. There’s some astounding detail.

* the angry phone call from one of the world’s top bankers after Darling brought in the bonus tax, where the banker seems to threaten not to buy UK Government debt. Extraordinary.

* HBoS trying to buy Bradford & Bingley, even as it was in deep trouble itself.

* HBoS requiring £16bn of overnight funding to keep going.

* confirmation that RBS cash machines were two hours from closing in October 2008.

If I read that first bullet point right, it appears that a banker was threatening the Government over tax policy. I have no doubt that they try and pull similar sh1t now. In the 70s we reached a crisis point in politics - "who governs?" - do we face something similar now, with the failure of private sector power in the banks, News Corp etc to accept accountability?

Hacked off, but...

2011-09-07T16:23:00.006Z

This is rather important. Transcript of yesterday's DCMS hearing here, and a key bit from Tom Crone's evidence:

Crone: Well I explained the For-Neville email for him [James Murdoch] yes…What I explained to him, and I can’t give it in clear accurate detail because I can’t remember, but there was only one reason we settled the Taylor litigation, and there was one reason therefore why we went to him to settle the Taylor litigation, and that was the emergence of a document which consisted of an email transcript sent by one of our junior reporters to Glen Mulclaire, and that transcript consisted of voicemail messages left to and by Gordon Taylor.

Watson: So he would have been aware that another member of staff had transcribed intercepted voicemail messages.

Crone: I explained the email to him,yes.

Watson: Did he then apply the company’s zero tolerance to wrongdoing policy and suspend that staff member?

Crone: No.

Watson: So here’s someone that you know has intercepted a transcript message of an illegally hacked phone by the criminal private investigator Glen Mulcaire… And none of you do anything about it? Including James Murdoch.

Crone: The document wasn’t evidence that the junior reporter had intercepted phone calls, but that he had transcribed, presumably from a tape or a disc, a number of voicemail messages. Therefore, what the evidence meant was that Mulclaire’s illegal activity in accessing Gordon Taylor’s voicemail messages, that evidence of that had passed through our office. The News of the World was implicated certainly by knowledge that Glenn Mulcaire had done that.

Watson: That others were aware of phone hacking other than Clive Goodman?

Crone: Yes

Watson: Nobody did anything?

Crone: (Shakes head to suggest no)

Watson: What did James Murdoch say when you put that to him?

Crone: I can’t remember

Watson: You remember telling him that was the case but you can’t remember what his reply was.

Crone: I would have explained the background of the litigation, I would have explained the stance we had taken up to the emergence of this document, and I would have explained what this document was and what it meant.

Watson: Why did he agree to settle?

Crone: That was the advice he was certainly getting from me and from the outside lawyers….

Watson: Why did he agree to settle for so much money?

Crone: In order to get out of a case.

Watson: Isn’t it the case that he was well aware that you would buy the silence of Gordon Taylor if you settled for £425,000?

Crone: The priority at that time was to settle this case, get rid of it, contain the situation as far as four other potential litigants are concerned and get on with our business.

Watson: He knew full well to settle for that amount of money would conceal the For-Neville email.

Crone: We couldn’t reveal the For-Neville email, because it had been given to us under very, very strict terms of confidentiality, imposed almost certainly by Mr Taylor and, I think, the Metropolitain Police. And there’s nothing covered up, [speaking over Watson] can I make something clear which seams to be missed, very regularly, possibly by this committee, and that is that the provenance of the document was the Metropolitan Police. It was a Metropolitan Police document, coming out of their files. How can we be accused of covering up something that has reached us through the police?

Watson: Are you aware that the previous legal guy from the company, Mr Chapman, said that in any case a confidentiality clause wouldn’t stand up…in a criminal investigation, so how could Taylor force you to a clause of confidentiality on an email that suggesting more criminal wrongdoing. You must have known that, you’re a lawyer yourself?

Crone: …What confuses me here is that you seem to be missing what I just said, this document came from the police. Its not as if it hasn’t been looked at, considered. Experts paid close attention to it in the appropriate area, which is the police force of this country.

Watson: The police will have questions to answer as well. But it is the case that you knew that if a crime had been committed Taylor’s lawyers could not hold you to a confidentiality clause, you knew that didn’t you? You’re a media lawyer, you’re a barrister.

Crone: Well, there’s a confidentiality clause agreed by both sides in a piece of civil litigation and normally that would mean to stick to the confidentiality clause I’m afraid, that’s what’s called straight dealing.

Directors' pensions: enormous

2011-09-07T07:35:00.000Z

The TUC's annual report on directors' pensions is out today.

Top bosses' pension pots increase to £3.9 million

Directors of the UK's top companies have amassed pension pots worth an average of £3.9 million, according to the TUC's ninth annual PensionsWatch survey published today (Wednesday).

PensionsWatch, which analyses the pension arrangements of 362 directors from the FTSE 100 companies, shows that the average transfer value (pension pot) for a director's defined benefit (DB) pension is £3.91 million - providing an annual pension of £224,121. The biggest pension pot in this year's survey is worth £21.5 million.

PensionsWatch shows that the average director's pension is 23 times the average occupational pension (£9,568), and 34 times bigger than the average public sector pension (£6,497).

The survey shows that despite the move away from DB pensions for most workers, the majority of companies (58 per cent) still provide these schemes to at least some of their directors. For the first time however, a minority of directors (145) are in DB schemes.

PensionsWatch shows that directors are also able to build up their pension pots far quicker than other staff. The most common accrual rate - the proportion of pay that a person receives as pension for each year they have been in the scheme - is 1/30th for directors. The most typical accrual rates for ordinary scheme members are 1/60th to 1/80th.

As more directors move to defined contribution (DC) schemes, PensionsWatch finds that the average company contribution has increased by £26,000 on last year to reach £161,149. For executives with the highest contribution in the company the average amount paid in is £211,859.

The most common Normal Retirement Age (NRA) is 60, with three times as many directors able to retire at 60 than 65. In contrast, the most common NRA for ordinary scheme members is 65, and this is expected to rise further for most public and private sector workers.

Many directors receive cash payments instead of participating in company pension schemes. The average cash payment was £138,436, an increase of £17,530 on last year. The biggest cash payment was £620,700.

Several FTSE 100 companies have announced changes to group pension schemes for staff in the last year, including some scheme closures. With directors' platinum-plated pensions rising year on year, it is inexcusable for companies to continue to chip away at pensions for other staff so that just one in three private sector workers is in an employer-backed scheme, says the TUC.

The TUC believes that private sector companies should follow the example of the public sector, where all staff are members of the same company pension scheme and enjoy the same benefits.

The TUC is calling for greater clarity in the reporting of pensions, including the mandatory disclosure of accrual and contribution rates. With pay and bonuses increasingly under public scrutiny, it is crucial that shareholders are also able to examine directors' pension arrangements, says the TUC.

Pensions will be a hot topic at the 143rd annual Congress next week, when unions will debate the defence of decent pensions in the public and private sector, and condemn the government's stealth cut by switching the uprating of pensions from RPI inflation to CPI - a move that could slash the value of pensions by 15 per cent over the next two decades.

TUC General Secretary Brendan Barber said: 'This survey highlights the real pensions scandal in Britain today.

'Not content with trousering huge pay and bonuses, often without any link to their performance, top directors are also rewarding themselves with seven digit pension pots. Worse still, some of these companies have cut back or even closed pension schemes for their staff.

'Public sector workers are rightly furious about being told that their pensions of just a few thousand pounds are 'gold-plated' and unaffordable by the same business leaders who stay silent on the multi-million pound pensions that many enjoy themselves.

'It's hardly a surprise that these lavish rewards are signed off when directors sit on each other's company remuneration committees. This culture of mutual backslapping must be tackled by giving ordinary staff members a voice on remuneration committees so that company schemes work in everyone's interests, and not just those at the top.

'The financial crash has put the issue of pay and bonuses firmly in the spotlight, but fat cat pensions are still shrouded in secrecy. The government must force companies to disclose directors' pension arrangements so that they can be scrutinised by both shareholders and staff.'

Shareholders as owners, two versions

2011-09-04T14:39:00.005Z

Version 1, traditional. Shareholders have, and should retain, ownership rights because they provide capital and run this risk of losing it. Management should act in the interests of shareholders, because they are the owners, and should be incentivised to do so. The interests of society, or other stakeholders, may overlap or contradict those of the owners. But, providing what the company does is within the law, this is Of no real importance. The responsibility of the management is to act in the interests of the shareholders, not 'society'.

Version 2, progressive. Shareholders have both ownership rights and responsibilities. The rights they have, both relating to control and to income, are balanced by a responsibility to ensure that the management does not undermine the company. The interests of the owners and of society are largely aligned, if over the long-term. Taking risks, or creating externailities, in the short term is no more in the interest of owners than of other stakeholders since the former are in it for the long-term and maybe 'universal owners'. This means that the owners have an interest in ensuring that companies do more than meet the bare minimum set out in law.

Which is closer to the truth? Personally I would say that in terms of the nature of share ownership, and the attitudes expressed In the Market, it still has to be 1. What's more although version 2 has become expressed a lot more in recent years, this has happened during a period in which long-term, long- only investing (which ought to fit better with such a view) has gone out of fashion.

Request for info

2011-09-03T14:34:00.003Z

Does anyone out there know anything about a body called the City Company Law Committee? The name crops up in the debate about the Bullock report on industrial democracy. Apparently the Committee issued a report on employee representation before Bullock reported, and made a response to it too. The latter document (which I have been unable to get hold of) appears to have stressed a pretty traditional view - shareholders take the right so must have primary control rights - even when this was clearly out if tune with reality. But I am basing this thumbnail on very brief excerpts reported in old academic article etc.

For info it appears that the Committee was set up by the Bank in 1975. Notably the Bank also set up the Institutional Shareholders Committee (now staggering on under the new name the Institutional Investor Committee) in 1973. So I wonder whether this was part of a conscious attempt to rehabilitate the 'shareholders are owners' approach to governance? Might make sense given that we know this was a period when the intellectual spadework forth New Right was well underway.

So any info about the Committee and where it is now (could have continued under another name) much appreciated. Happy to put up a guest postvif anyone has a lot of info.

Bonus politics

2011-09-03T14:02:00.003Z

It seems a bit churlish to not simply say that James Murdoch's decision not to take this year's bonus because of events a NOTW is A Good Thing, but the decision does throw up a few issues that are worth exploring.

For example, Murdoch Jnr's statement makes clear that he was awarded the bonus because he hit his targets. This, I have no doubt, is true but leads to a few further questions. It may also be the case that he was awarded, and took, past bonuses that were in part based on News International's performance whilst the company knew that hacking had been taking place but was still denying it. So he may have been rewarded for his management of a business that apparently misled the public and parliament about it's practices. My point is not that this is ethically wrong, but simply that a business can get away with low standards and stil make a lot of money (and pay big bonuses). In other words simply hitting performance targets is not necessarily in and of itself a good thing.

if Murdoch Jnr hit all his targets then this could suggest a number of other issues to look at. Maybe NOTW wasn't all that important to his performance metrics. This chimes with the line News Corp, and Murdoch Snr, have taken that they couldn't be expected to know about this kind of stuff because it's only a small bit of the empire. Maybe that's true, but then why are they paid as if they have responsibility for the whole lot? It also suggests that a board member of a big media company can shut a profitable national newspaper without it affecting how their performance is judged. That is a bit worrying if you think there are any media owners who indulge in any kind of partisan politics. Ahem...

It also seems a bit odd that the compensation committee didn't exercise a bit of judgment on this one. I mean they must have had an idea of how bad it would look when the news came out. Even the banks were a bit smarter than that. From the outside it slightly suggests a board that doesn't challenge. Finally, doesn't it also suggest that at least some part of incentive pay (if we're sticking with it) ought to be dependent on reputation management? News Corp itself has said that the hacking scandal may impair its ability to do business. Why isn't this potential risk reflected in performance metrics?

Of course to be fair we should state that it's likely that most of the performance for which the bonus was paid occurred before the hacking story broke (early July). But then I go back to the point that this is performance during a period when News International knew quite a bit about the extent of hacking, even by James Murdoch's version of events.

So really we shouldn't expect any less than him notvtaking the bonus, and arguably we should question why his bonus wasn't significantly reduced by the comp committee in the first place.

Running out of road on exec pay

2011-08-31T20:00:00.006Z

For a variety of reasons, I've felt a lot less like blogging recently. Some of it is due to the intrusion of real life, but latterly I've realised it's also because I'm not sure what I think. When I first started writing this blog I had a pretty good idea of what I thought needed attention and what I thought some of the solutions might be. As I've blogged before, my orientation within the Corp gov/RI has always been a pretty pragmatic one - I might prefer another economic model, co-determination or whatever, but you have to act within the framework that faces you (whilst pushing for change to it).

As is no doubt obvious, a mixture of the experience of the financial crisis and some further reading, particularly of older Left perspectives on Corp gov, has altered my views quite a bit. I've always thought that the nature of the financial system (especially the delegation of 'ownership' to asset managers) has made effective shareholder oversight difficult. What I didn't grasp was just how reluctant many managers are to challenge management, even when it clearly could be beneficial. Status quo bias is endemic.

Reading further back in Corp gov history it's notable that the idea that shareholders are owners, or should be afforded primary position in terms of influence, was not taken seriously until very recently. As I've blogged previously, Crosland, in his own pragmatic way, says it's not even worth making legal or structural changes since the notional ownership role of shareholders has no serious application in reality. Fast forward and the unions no longer provide the same kind of countervailing power within companies that they did when Crosland was writing, and corporate power generally appears to have strengthened. Therefore some on the left have seen developing the concept of shareholding as ownership as an alternative way to restrain that power.

Labour developed this idea in government, and a common thread can be traced through initiatives such as the Company Law Review, Myners Review, DRRR etc. To reiterate this was a break from previous theory on the Left about corp gov, an arguably stakeholder theory provided a potential alternative in the mid 90s, but a 'shareholders as responsible owners' conceptual approach has dominated since.

In particular it has dominated in the executive pay debate, where a number of difficult problems have been shoveled into the 'shareholders can deal with it' box. Hence the repeated suggestion that the principal problem is 'rewards for failure', and the principal solution put forward is better performance linkage. It has been argued by some on the Left that executive pay is only an issue for shareholders and boards. And it's been argued that shareholders have a particular interest in policing pay, as poor policy and practice can be a proxy for poor governance generally.

There are a number of problems with such an approach, and they are now beginning to make themselves felt. Most obviously, many asset managers don't really care about scale of rewards. They may push on performance linkage but even achieving this means that execs can still push up the size of reward, and that's exactly what happens in practice. Simply stating you are against rewards for failure means you fail to tackle rent extraction, which (IMO) is what happens in practice. And it happens across the board too, so if you are bothered about the pay gap it simply isn't true that poor policy is a proxy for poor governance generally, because most are at it.

We are now in an environment where there is growing concern about the gap between rewards for the executive class the rest of us. I fundamentally believe that if any Government wants to address this they either need to find a way of getting shareholders to change their approach, or they need to make a break with recent policy. Most institutional investors and their representatives at the moment simply won't go into bat to address the pay gap. So either they change, or something else does.

So, to come full circle, I think this is why I am struggling to write on governance stuff currently. I have a sense that any attempt to address executive pay excess may start to pull away at the policy consensus that has existed for some time. But I don't know where we go next. It should be a creative time, really, but my brain isn't quite up to it, yet.

News Intenational statement on hacking, July 2009

2011-08-30T07:08:00.003Z

This is seriously worth a read. Blogger still not wanting to link, so URL here: http://news.sky.com/home/uk-news/article/15335532

Clive Goodman's letter, moaning that he was being punished for what everyone else was doing (hacking), was sent in 2007.

Also notable that News Corp is making similarly unequivocal statements currently about who knew what and when.

News International has delayed making this detailed statement until all relevant facts have been analysed and checked internally and externally.

News International has completed a thorough investigation into the various allegations made since the Guardian story broke on Wednesday.

This investigation augmented a similar process here following the arrest of private investigator Glen Mulcaire and News of the World journalist Clive Goodman in August 2006.

Perhaps more significantly, the police investigation into Glen Mulcaire and Clive Goodman began in 2005, nine months before the two men were arrested.

Prior to arrest the police conducted live monitoring of both men's activities and also kept the News of the World activity in this area under investigation.

The raids on Mulcaire's premises, on Goodman's premises and on the News of the World office seized all relevant documents and all available evidence.

The police investigation continued after the arrests and all relevant activity was studied and analysed in the context of identifying unlawfulness/criminality.

The police investigation was incredibly thorough.

Apart from matters raised in the Mulcaire and Goodman proceedings, the only other evidence connecting News of the World reporters to information gained as a result of accessing a person's voicemail emerged in April 2008, during the course of the Gordon Taylor litigation.

Neither this information nor any story arising from it was ever published. Once senior executives became aware of this, immediate steps were taken to resolve Mr Taylor's complaint.

From our own investigation, but more importantly that of the police, we can state with confidence that, apart from the matters referred to above, there is not and never has been evidence to support allegations that:

:: News of the World journalists have accessed the voicemails of any individual.

:: News of the World or its journalists have instructed private investigators or other third parties to access the voicemails of any individuals.

:: There was systemic corporate illegality by News International to suppress evidence.

It goes without saying that had the police uncovered such evidence, charges would have been brought against other News of the World personnel.

Not only have there been no such charges, but the police have not considered it necessary to arrest or question any other member of News of the World staff.

Based on the above, we can state categorically in relation to the following allegations which have been made primarily by the Guardian and widely reported as fact by Sky News, BBC, ITN and others this week:

:: It is untrue that officers found evidence of News Group staff, either themselves or using private investigators, hacking into "thousands" of mobile phones.

:: It is untrue that apart from Goodman, officers found evidence that other members of News Group staff hacked into mobile phones or accessed individuals' voicemails.

:: It is untrue that there is evidence that News Group reporters, or indeed anyone, hacked into the telephone voicemails of John Prescott.

:: It is untrue that "Murdoch journalists" used private investigators to illegally hack into the mobile phone messages of numerous public figures to gain unlawful access to confidential personal data, including: tax records, social security files, bank statements and itemised phone bills.

:: It is untrue that News Group reporters have hacked into telephone voicemail services of various footballers, politicians and celebrities named in reports this week.

::It is untrue that News of the World executives knowingly sanctioned payment for illegal phone intercepts.

All of these irresponsible and unsubstantiated allegations against News of the World and other News International titles and its journalists are false.

The Guardian has been selective and misleading in its coverage of the report and investigation by the Information Commissioner.

There has been and is no connection between the Information Commissioner's investigation and the allegation of hacking into telephones or accessing telephone voicemails.

The report concerned the activities of a private investigator who, between April 2001 and March 2003, supplied information to 32 newspapers and magazines including, incidentally, the Guardian's sister newspaper, The Observer, which according to the Information Commissioner was ninth worst "offender" out of the 32.

The information supplied was deemed to be in breach of the Data Protection Act 1998.

When Les Hinton gave evidence to the Select Committee in March 2007, the evidence which emerged during the Gordon Taylor litigation in April 2008 was not known to Mr Hinton or any other senior executive within News International.

Furthermore, we are inviting the Guardian to supply the Metropolitan Police with any new evidence they claim to have.

Since February 2007, News International has continued to work with its journalists and its industry partners to ensure that its journalists fully comply with both the relevant legislation and the rigorous requirements of the PCC's Code of Conduct.

Finally, we would like to make it clear that despite the Guardian suggesting otherwise, the departure of Managing Editor Stuart Kuttner has no connection whatsoever with the events referred to above.

The Guardian were informed of this position from the outset and chose to mislead the British public.

Andy Coulson's legal fees

2011-08-24T07:01:00.003Z

According to the FT this morning, Coulson's legal fees "to date" have been paid by News International. So presumably that means during time at Number 10 (if there were any)* and since his arrest in July?

More to come, no doubt.

* UPDATE: Been a bit thick here - just remembered that News Intl already confirmed they paid his fees in the Sheridan trial.

Hacking, again

2011-08-22T23:09:00.002Z

Just a few quick thoughts on the latest Coulson story. It looks like it was just his severance pay, paid out in chunks. I think the timing of the payments is odd (don't you usually get your payoff in one lump, straight away?) and it certainly doesn't look good.

Coulson appears to have given a rather misleading impression to the CMS committee of his financial relationship to NI. Evidence from NI execs is also under scrutiny. See Tom Watson's site - www.tom-watson.co.uk (Blogger being a git about links tonight) - for details on both.

The odd thing is, the rumour that NI had being paying Coulson whilst working for Cameron has been circulating for some time. Kevin Maguire ran a bit in the New Statesman in mid July (see column dated 18th July on NS website). So someone, somewhere, clearly did know this was happening and was trying to get the info out.

And how does the rumour finally get confirmed? - by Pesto. It has to make you suspicious that this means someone at NI was involved which suggests they are really hanging Coulson out to dry. But why?

The politics of phone hacking

2011-08-22T19:06:00.002Z

It's interesting to note that, before the recent revelations about hacking emerged, it was a common belief on the part of many right-wingers that the allegations against Andy Coulson etc were a) a journo-on-journo obsession and b) politically motivated. Some people were even dumb enough to argue that the whole thing was politically motivated, cooked up by Labour and The Grauniad, which looks very stupid in retrospect. Boris.

Now that I've got my partisan jibe in, I thought I'd relay my own views on this one. Over the past couple of months I've followed a lot of the detail of the hacking scandal. In all of this I can honestly say politics, in the partisan sense, isn't a factor. I'm not bothered if the scandal does damage to David Cameron, regardless of what I think about his judgment in hiring Coulson. I didn't celebrate the closure of The News of the World, with innocent employees given the boot, though nor did I join in the collective misremembering of what was, in large part, a comic. I don't hope the knock-on effects will damage Fox News - I don't like or watch it but am totally comfortable with others doing so. Nor do I want to see Sky damaged, otherwise how will I watch humiliating 7-1 defeats... I would even go a long way defending journos on public interest grounds, even, maybe, employing hacking. But in this case we clearly see that the practice went way beyond that.

I don't deny that some of these factors may have affected others' views of the hacking scandal, but I can honestly say that isn't why I have got interested. For me the issue is the misuse of power and a lack of accountability. News International has had a corrupting influence on politics and the Police. Through the select committee process, we have seen that this is a company that will do anything to avoid accountability. It is only in the last month and a half, when faced by a serious crisis, that it has given any ground. And even now it maybe the case that the company is not playing with a straight bat. In the broader sense of politics, regardless of which parties Murdoch papers and channels support, this is behaviour that any self- respecting lefty should be concerned about.

I am a strong believer that the fish rots from the head down, and that corporate norms are hugely influenced by executive behaviour. If any former or existing NI employees are shown to have misled parliament they need to be made to face the consequences. I am not the sort of lefty that believes in the 'evil-global-megacorp' view of corporate influence on politics. I don't believe that most companies behave like NI. But in order that people do have a degree of trust in the system an example needs to be made in this case.

extremists vs the present

2011-08-20T19:57:00.004Z

I took a punt on The True Believer by Eric Hoffer recently. It's a series of reflections on how movements like communism and fascism attract adherents, and what kind of people are drawn to them. It's not great as it's very speculative (no underlying research) amd I suspect if it were written today it would vanish without a trace. Analysis has moved on a great deal since the 50s!

Still, it does hit the target quite a bit too (though maybe that's just because it confirms my prejudices about extremists). For example:

Not only does a mass movement depict the present as mean and miserable - it deliberately makes it so. It fashions a pattern of individual experience that is dour, hard, repressive and dull. It decries pleasures and comforts and extols the rigorous life. It views ordinary enjoyment as trivial or even discreditable, and represents the pursuit of personal happiness as immoral. To enjoy oneself is to have truck with the enemy - the present. The prime objective of the ascetic ideal preached by most movements is to breed contempt for the present. The campaign against the appetites is an effort to pry loose tenacious tentacles holding on to the present. That this cheerless individual life runs it's course against a colourful and dramatic background of collective pageantry serves to accentuate it's worthlessness.

The very impracticability of many of the goals which a mass movement sets itself is part of the campaign against the present. All that is practicable, feasible, and possible is part of the present. To offer something practicable would be to increase the promise of the present and reconcile us with it...

And:

The radical and the reactionary loathe the present. They see it as an aberration and a deformity. Both are ready to proceed ruthlessly and recklessly with the present, and both are hospitable to the idea of self-sacrifice.. In reality the boundary line between radical and reactionary is not always distinct. The reactionary manifests radicalism when he comes to recreate his ideal past. Hs image of the past is based less on what it actually was than on what he wants the future to be. He innovates more than he reconstructs. A somewhat similar shift occurs in the case of the radical when he goes about building his new world. He feels the need for practical guidance, and since he has rejected and destroyed the present he s compelled to link the new world with some point in the past. If he has to employ violence in shaping the new, his view of man's nature darkens and approaches closer to that of the reactionary

Another hacking arrest

2011-08-18T10:40:00.002Z

And another Grauniad scoop. Any suggestions for a collective noun for "rogue reporters"? A Coulson?

The pensions divide

2011-08-15T21:43:00.001Z

A belated plug for a great report from the High Pay Commission on directors' pensions. This is something I've been looking at for years now, and it continues to shock me. If you look at boardroom pension provision, double standards are the rule. Where there are still DB schemes there are rapid accrual rates - 1/30ths very common - where there are DC schemes directors get massive company contributions - 20% not uncommon. This is despite staff in the same company getting substantially worse provision. Given that directors already have higher salaries they build up much bigger pensions. This differential provision simply acts as a turbo-charger.

This is also an area where shareholder oversight has been extremely weak. Very few investors have bothered to take a firm line, meaning that there is no significant pressure on companies to reform. Shareholders may conclude that, yeah, it's unfair but it's only a smallish bit of the overall package. The result is that companies do what they can get away with. I've come to the conclusion that - if Government thinks differential provisions is unacceptable - some sort of legislative intervention is therefore required.

Anyway, here are some headline stats etc from the HPC report:

A FTSE 100 director with a defined benefit pension could be expected to receive a
median annual pension worth £174,963 on retirement.

The annual median pension paid from a private sector defined benefit pension scheme was £5,860 for the rest of the work force.

FTSE100 median accrual rate for directors - 1/30ths (average 41)

Mid250 median accrual rate for directors - 1/45ths (average 47.8)

Typical accrual rate for staff - 1/60ths or 1/80ths

FTSE100 median company contribution rate to director DC scheme - 17% (average 19.4%)

FTSE100 median company contribution to director DC scheme - £88,000

Mid250 median company contribution rate to director DC scheme - 15% (average 16.4%)

Mid250 median company contribution to director DC scheme - £43,000

Average employer contribution to staff DC schemes - 6.1%

Delightful penguins etc

2011-08-11T19:00:00.003Z

Great comment from Luis Enrique here in response to the argument a 'greed is good' culture is a backdrop to this week's riots:

Where and how does society promotes those values? In the films, telly programs, books and newspaper articles I read, all those values are portrayed as bad. Jim Carey, for instance, always starts out a career oriented monster but then some delightful children/penguins teach him the error of his ways.

I feel exactly the same. You generally cannot watch a mainstream film without getting the message that your family and friends are far more important than careers and material possessions. What's more this message is embedded in a story, a narrative, rather than just a 15 second advert, so it potentially ought to have greater pull. The messages we are sent about the value of material stuff are mixed to say the least.

Some other random thoughts. Personally, I think that lots of young kids got involved in this stuff primarily because a) it is fun (something no-one seems to want to acknowledge) and b) they saw others doing it and getting away with it. Herdlike destructive behaviour that, briefly, looked to participants like something they could get involved with, cost-free.

By coincidence, as my bus home usually goes down Rye Lane I ended up right where the violence flared up in Peckham on Monday night. The kids there - and they were mainly pretty young - did not look angry, they looked excited. And I felt that atmosphere that I have felt before in big crowds, be it on a demo or at football or whatever, that if just one or two people start something off, everyone else will pile in. Once I saw that I immediately thought it would definitely kick off and that I should get out of the way.

So, again just my personal view, I suspect that - Tottenham aside - there isn't much worth 'learning' from what just happened. I can't really see how we can address the fact that young people (especially young blokes) get a kick out of smashing stuff up if they can get away with it, without resorting to some pretty draconian measures that we won't need the vast majority of the time.

Oddly, despite the fact that they smashed up our local Tescos, and the nearest main shopping street, I don't really feel any anger about the riots. Maybe it's because I've got other things to be angry about currently, but I suspect a lot of people now expressing outrage were glued to rolling news on Monday, when it looked like the news montage section used to illustrate society collapsing that you see in dystopian sci-fi/horror films. ho hum.

It's too late for empty rhetoric. It's a riot.

2011-08-11T18:47:00.002Z

Crackhouse - Consolidated

Libertarian socialism, corporate power and governance

2011-08-10T19:30:00.004Z

It's an obvious blindspot spot of Bloggertarians/glibbertarians/swearyTorytarians that they typically have little to say about corporate power. Or rather their arguments take the 'if you don't like company X don't shop there' form, as if consumer 'exit' has enough power to address issues like, for example, escalating executive pay. Personally I think it's hard to take a 'libertarian' seriously if they have nothing useful to say about challenging corporate power, but hey.

I was reminded of this when reading this today. It's not a great book IMO, but it is representative of a thread within the Left that was democratic, socialist and libertarian. And, most importantly, it had something to say about the nature of work, and power in the workplace. Here are some comments about the nature of power:

In the large enterprises, legal ownership of the means of productions has become separated from the management and has lost importance. The big enterprises are run by bureaucratic management, which does not own the enterprise legally, but socially... They administer things and persons, and relate to persons as to things. This managerial class, while it does not own the enterprise legally, controls it factually; it is responsible, in an effective way, neither to the stockholders, nor to to those that work in the enterprise. In fact, while the most important fields of production are in the hands of the large corporations, these corporations are practically run by their top employees. The giant corporations which control the economic, and to large extent the political, destiny of the country constitute the very opposite of the democratic process; they represent power without control by those submitted to it.

I might not agree with this, since I do think we have the potential to control the corporate sector via political power, just that our politicians seem to have lost the confidence to do this. However, in practice, politics too often works to legitimise corporate power, either by not challenging it (see the way the exec pay controversy is redrawn as being just about rewards for failure) or by appointing business leaders to tackle 'difficult' issues as if they are the only group in society able to 'do' anything. And I would struggle to argue strongly against the view that legal ownership doesn't tell us much about who really has power.

I wonder what libertarian Righties would say. Notably Ayn Rand fan Alan Greenspan seems to think that autocratic corporate governance is a necessary evil. A similar argument i have seen is the 'all is for the best in the best possible worlds' view that if a better (ie more efficient model) were available it would have emerged and been backed by shareholders. So I'm not clear they consider there is any problem.

Anyway, here's a bit more from Fromm (hehe) on the general approach to be taken.

[I]f a choice has to be made between greater production on the one hand, and greater freedom and human growth on the other. the human as against the material value must be chosen. In socialist industrialism the goal is not to achieve the highest economic productivity, but to achieve the highest human productivity. This means that the way in which man spends his energy, in work as in leisure, must be meaningful and interesting to him. It must stimulate and help to develop all his human powers - his intellectual as well as his emotional and artistic ones.

Now again I might not agree with this, but it is at least an attempt to think about work and freedom from the point the point of the worker, rather than simply in terms of production (Robert Lane's the Market Experience has a well argued case for this).

And here are some more comments, admittedly pretty vague, about the objectives of this approach to socialism:

Humanistic socialism is the extension of the democratic process beyond the purely political realm, in to the economic sphere; it is political and social democracy. It is the restoration of political democracy to its original meaning: the true participation of informed citizens in all decisions affecting them.

Extension of democracy into the economic sphere means democratic control of all economic activities by participants: manual workers, engineers, administrators, etc. Humanist socialism is not primarily concerned with legal ownership [a bit Croslandite eh?], but with social control of the large and powerful industries. Irresponsible control by bureaucratic management representing the profit interest of capitalism must be replaced by administration acting on behalf of, and controlled by, those who produce and consume.

He goes on to say that shareholders would continue to receive compensation for the use of their capital, but no rights of control or administration, and suggests practical reforms such as 25% employee representation on 'decision-making boards'.

This approach, and the limited proposals put forward, may be impractical, but they are an attempt to deal with power and freedom at work, where we spend a lot of our time. If libertarians don't think there is much scope, or need, for reform here then I'm not sure why we should take them too seriously when they make criticisms of the political world. More broadly though, I think there is plenty of scope currently for the Left to have a look back at its own libertarian history. At the very least it shows us what limited ambition the Right version has.

Excusing social envy and resentment

2011-08-10T07:01:00.000Z

"[I]t is sometimes said that one is doing something disgraceful, and merely pandering to the selfish clamour of the mob, by taking account of social envy and resentment. This is not so. These feelings exist, amongst people not morally inferior to those who administer such high-minded rebukes; and they are quite natural. It is no more disgraceful to to take them into account than many other facts that the politician must attend to - such as the greed of the richer classes, who claim that they must have higher monetary rewards and reduced taxation as an incentive to greater effort, patriotism being evidently not enough."

Err... Crosland again.

'Belatedly' - the defining theme of David Cameron?

2011-08-09T20:18:00.001Z

Reading a report in the FT about the rioting, I spotted the word "belatedly" in relation to David Cameron's response. It's a word also used a lot in terms of his response to the phone-hacking scandal and the NHS reforms. I think it is becoming a perception - at least in the commentariat - of his style of government.

The Right (understandably) ranks his ability to put on a good public performance. But it is noticeable that now for the third time on a big issue this has come after a prolonged period of drift. One to keep an eye on.

US influence on UK corporate governance

2011-08-06T11:34:00.005Z

A few years back when I was still at the TUC, I went to a conference on globalisation organised by the DTI for policywonkers. There was one session that had relevance to corporate governance and I remember saying that the shifting asset allocation of institutional investors, away from home markets, would likely have an influence on UK corporate governance. US investors, likely to be responsible for the main block of new ownership of UK shares, might take a different view to that of domestic investors. Lead balloon time. I felt like I was being viewed as numbskull protectionist (which I'm not, honest) but I was only suggesting what might occur.

Well, a few years later I think we are starting to see it happen, albeit in rather trivial terms so far. As I've blogged previously, the position of some US investors (and, I think, some non-UK European investors) on resolutions seeking to reduce the notice for calling meetings is already showing up in voting data. The average vote against this type of resolution this season is significantly above the average vote against a director or an auditor appointment. Now you pays your money and all that, but this doesn't make any sense to me. More importantly, I think it is a further distortion of the signaling function of voting, a point I think is still missing from the stewardship debate. (My point in a sentence - if you have concerns but still vote in favour, your signal to the market is misleading).

So far this hasn't mattered too much at a company-specific level. As far as I can see only two companies - Hammerson and Blacks Leisure - have actually lost the vote on such a resolution, and in the latter case this seems to be the result of Mike Ashley dicking about. But it's not the only issue where this seems to be happening. I've also seen some high votes against political donation resolutions where the company has said it doesn't make party political donations (which, as we know, is the case for the vast majority of UK companies). Trawling through public voting data, we can see that again it isn't UK institutions causing this.

More significantly, there are now some pretty stonking votes against resolutions relating to share issue authorities, including at least two or three defeats (Investec most recently). This is a slightly different case, as certainly some UK investors will take the same stance, but the votes against these types of resolutions do seem to have gone up. But again, having trawled through a fair bit of voting data, I don't believe it can be UK institutions in the main driving it. I'm interested to hear what others think.

Of course you may argue that none of this matters. If you believe in a liberal market for corporate control you can't really moan about the 'wrong' people with the 'wrong' views ending up owning UK public companies. But I do think is something we need to keep an eye on. For example, what if US mutual funds, not known for their hard line on executive compensation, become a bigger influence. What message will they send UK PLC boards about pay restraint? If the UK is going to stick with shareholder oversight as a means to address executive pay inflation this may be a problem we need to think about in the future.

It's potentially another significant issue for the UK's corporate governance model to address.

Unelected oligarchy

2011-08-05T12:02:00.000Z

Worth a read.

Performativity

2011-08-05T12:01:00.000Z

A good bit on S&M about this.

Corporate monarchy

2011-08-04T12:17:00.002Z

Is it just me, or isn't it a bit odd to leave the closing speech at a conference about corporate governance to someone whose position in society is wholly determined by who their parents were?

I'm a totally half-hearted republican. I don't agree with monarchy in principle, but I spend no time thinking about it/doing anything about it because I consider it to be pretty irrelevant. I have no interest in what the Royal family do or say, but have no negative feelings about them. And I can see that Princes Charles seems to mean well, in the manner of a million aristos before him.

But surely the idea of hereditary power and privelege stands in total opposition to the aims of corporate governance, which seeks to ensure that positions are won on merit, and individuals are accountable.

I mean, imagine a FTSE100 board allowing the appointment of a chief executive who just happened to be son of the chair. It would never happen, shareholders would challenge it head on.

Revisionism

2011-08-02T19:44:00.004Z

A couple of short snippets from The Future of Socialism on the need to rethink.

[T]oday, conservative or indolent-minded people on the Left, finding the contemporary scene too puzzling an unable to mould it into the old familiar categories, are inclined to seek refuge in the slogans and ideas of 50 years ago. But Keir Hardie cannot provide... the right focus with which to capture the reality of the mid twentieth century world.

and...

[W]hen the wrongs were so manifest, we all knew what to do, and where the enemy was, and what was the order of battle; it was exhilarating to fight for such clear-cut and obviously righteous aims. But now the certainty and simplicity are gone; and everything has become complicated and ambiguous. Instead of glaring and conspicuous evils, squalor and injustice and distressed areas, we have to fuss about the balance of payments, and incentives, and higher productivity; and the socialist finds himself pinioned by a new and unforseen reality.

Personally I think we need another period of revisionism on the Left, and this must involve going beyond New Labour's view of what was right. Tony Blair cannot provide the right focus for the problems of the early twenty-first century world.

In the bit of the world that I inhabit what I see is the emergence of a plutocracy, driven in no small part by the continuing rise in executive pay. Labour must challenge this, because no-one else will. And to do so must involve an unprejudiced look at what our recent attempts to rein in executive pay have achieved. We must, in particular, get past the dominant idea (dominant because it is uncontroversial and is inherently part of the existing theoretical approach) that the principal problem is 'rewards for failure'. Clearly this must be dealt with, but the much, much bigger and more difficult problem is to address the increasing amount of money extracted by the executive class from public companies. To answer this problem with the slogans of the last decade "more disclosure, greater shareholder oversight" is simply to repeat the failed approach of recent experience.

I don't claim to know what the answer is. But I am pretty confident that a purely market solution - relying on the 'owners' to police pay because it is in their 'self-interest' - is a dead end, due largely to the nature of ownership and the owners themselves. Labour needs to start some deep thinking about this if it wants to make a difference.

A cheeky argument against annual elections

2011-08-02T19:40:00.001Z

There's an interesting claim from Hermes in this week's Financial News that the boardroom coup at Eurasian earlier this year was only possible because the company had instituted annual elections.

So what actually happened? Two directors - Sir Richard Sykes, the SID, and Ken Olisa - were voted off the board (two others stood down ahead of the AGM). But was this due to annual elections? Not in the case of Sykes. Go back to the 2008 AGM report here (PDF) and you can see that Sykes and Olisa were up for election. Looking at 2009 and 2010 AGM statements we can see that Olisa also faced re-election in 2009, but Sykes has not faced re-election since. So, on the three-year cycle that was the norm before the Code was revised, the SID would have been up for election in 2011 in any case and so could have been voted off anyway. Incidentally, one of the directors that stood down would also have been due to face re-election this year.

Personally I think the important point about Eurasian is that it's another example of dodgy governance where there's a controlling shareholder (or in this case group of shareholders). In this case it the problems were magnified by the tiny free float. In that case the problem we should be tackling is listing requirements, rather than refighting the annual elections argument.

What would Crosland say now?

2011-07-31T14:28:00.003Z

Here's his view of power over public companies in The Future Of Socialism:

Top management today is independent not only of the firm's own shareholders, but increasingly of the capitalist or property-owning class as a whole, including the financial institutions. As compared with the inter-war period, a higher proportion of profits is ploughed back into the business, and a higher proportion of capital expenditure is financed internally and not by resource to outside capital. It is true that the Marxist prophesy of the transition to "finance-capitalism", as industry fell more and more into the clutches of the City and the banks, was never at any time wholly fulfilled in Britain. But the financial difficulties created by the depression caused at least a trend in that direction before the war; and there were certain important industries in which management was, in consequence extremely susceptible to outside financial pressure.

Today, however, a decade of prosperity and high gross profits, combined with a lower ratio of dividend distribution, has greatly fortified the financial strength and independence of most public companies. Despite the increased weight of taxation, undistributed profits are normally sufficient (taking industry as a whole) to finance the whole of industrial capital formation - with a good deal, indeed, to spare. Naturally some firms still ned to borrow or make new issues of share capital; but internal company savings, relative to investment, are now higher than before the war. The economic power of the capital market and the finance house, and hence capitalist financial control over industry (in the strict sense of the word), are now much weaker. This change alone makes it rather absurd to speak now of a capitalist ruling class.

State Violence State Control

2011-07-30T14:30:00.002Z

Rebotini.

catharsis

2011-07-28T17:15:00.004Z

My little family suffered a blow this week. Going to try and put all the negative feelings to some use by ripping into various people/organisations.

Tom

A couple of big votes

2011-07-21T19:41:00.003Z

Work has been the blight of the blogging classes this week, back on the case soon. In the meantime today saw a couple of notable votes on remuneration related issues.

At Cable & Wireless Worldwide there was a 32.5% vote against an incentive scheme. Quite a lot of abstentions too, but can't be bothered to work out the figures yet.

At De Le Rue there was what looks like a mini revolt against the remuneration report- x% - but add in the huge number of abstentions and the vote in favour is just over 49%. A win is a win and all that, but if I were the company I would be a bit worried. Last Afren got less than 50% in favour, but won on a straight for/against split. This year it lost.

First Group pay

2011-07-15T12:10:00.001Z

Just scraped through RNS here. Just over 57% in favour on a straight for/against split is very bad. But add in abstains and this was only just majority active support - 51% to 49%. Ouch.

ICAP pay revolt

2011-07-14T07:16:00.000Z

Whenever a company's RNS release on its AGM doesn't include the actual voting results (saying simply 'all resolutions were passed') it's worth having a dig around. So it was with ICAP yesterday. Their RNS statement:

ICAP plc announces that at its annual general meeting held at 11.00 am today, all resolutions proposed at the annual general meeting, as set out in the notice of meeting, were passed on a show of hands with the requisite majorities.

Over on their IR site you can get the full results (2011 Proxy Results file), which show a hefty 33.5% vote against the rem report.

Disruption

2011-07-11T20:29:00.002Z

The second half of this sounds a bit like NOTW:

In the operation of modern markets, disruption of organisations has become profitable. While disruption may not be justifiable in terms of productivity, the short-term returns to stockholders provide a strong incentive to the powers of chaos disguised by that seemingly reassuring word "re-engineering". Perfectly viable businesses are gutted or abandoned, capable employees are set adrift rather than rewarded, simply because the organisation must prove to the market that it is capable of change.

From The Corrosion of Character.

The serenity Blair

2011-07-10T18:49:00.007Z

God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.

I read something recently which suggested that when we communicate with each other we work from the assumption that the other person is saying something meaningful (in the most limited sense, that it means something). So we will look for meaning, even when there isn't any. Clearly when we are dealing with figures with some sort of expertise our ability to find meaning is even keener. Once you're seen as being some sort of expert you can come out with pretty much anything and people will find significance in it.

So I find myself a bit bemused by some of the reaction to Tony Blair's latest comments. If anyone else had said something like this

In the real world of the 21st Century there will be some pick and mix of policy. Sometimes it will be less left vs. right than right vs. wrong. Above all, today efficacy - i.e. effective delivery, motivated of course by values, matters as much if not more than ideology. Don't fear it. Embrace it. It liberates us to get the correct policy. And the best policy is usually the best politics. It is not a betrayal of principles. It is applying principles to changing times.

Or this

Parties of the Left have a genetic tendency, deep in their DNA, to cling to an analysis that they lose because the Leadership is insufficiently committed to being left, defined in a very traditional sense. There's always a slightly curious problem with this analysis since usually they have lost to a right-wing Party. But somehow that inconvenient truth is put to the side.

Would the reaction have been anything other than a "yeah, and" shrug? We shouldn't put ideology before practical policy, and in defeat we should not retreat into our comfort zone. Tony went on to say, to rapturous applause, that we should make an effort to spend more time with our parents as we get older, because we'll miss them when they're gone...

Which would be alright, if of no particular importance, but for the fact that it is welded to yet another defence of New Labour. This version went a bit further and said that the last three years in power were not NuLab. What I find odd about this is the rigidity of the position adopted which, to me, is the antithesis of what was valuable about New Labour in the first place. Obviously we should seek to focus on 'what works' rather than ideas we have emotional attachment to. But who in Labour these days is most guilty of wanting to cling the past, and of seeming to believe there is One True Path? I would suggest those who talk about not budging one millimetre from the previous approach have a pretty good claim. New Labour had a powerful appeal, both within Labour and outside, because it did, as Tony suggests, liberate us. But now it most often seems to be the keepers of the Blairite flame who are talking about what can't be done, and can't be changed.

It's notable that the party is therefore frequently issued with warnings about abandoning the centre ground, but often these betray a view where the centre ground is unshifting. Again this seems to be a reversal of the optimism, and achievements, of New Labour. Whilst aware of where the public were, it also had an aspiration to move the consensus on issues. Now Blairites seem to be far more pessimistic about what you can achieve. And it's principally for this reason, I think, it's a busted flush. Optimism is attractive and inspiring, pessimism is not, though it is comfortable and less risky.

When you go back and read Tony's old speeches they drip with optimism, and when you hear him speak he still has that. But his loyalist supporters seem to have hardened his worldview into a rigid approach to politics that now leaves me cold. And 'efficient delivery of services' is a guiding principle for a mobile phone company or something, it is nothing like enough to inspire a political movement.

Ultimately as a party we have to have some assumptions about what we can realistically change and what we just have to accept and work within. But, as events both this week and the last few years in the financial crisis have shown, we can get some pretty fundamental assumptions wrong. When that happens we have to redefine what we think is changeable. Otherwise even radical reformers can end up as conservatives.