EMI, agency theory and stuff

A few inter-linking points that are swishing around my tiny little mind this Friday evening. First up, a quick thought about EMI. It's a simplistic point, but it does demonstrate that whatever advantages private equity might have as an ownership structure, these surely can't outweigh poor decision-making. Private equity has concentrated ownership, plus, if you buy the Jensen argument, all that debt focuses management minds. But ultimately it's just a different structure. Companies who dislike pressure for corporate governance reform often make the point that good policies and structures don't make good managers, exactly the same is true even when the agency problem is in theory reduced under private equity ownership.

Secondly, what does the continuing growth of executive remuneration - apparently unlinked to performance - tell us about agency theory? One could argue that the problem agency theory would lead us to expect in respect of remuneration - managers making out like bandits because they can - has actually got worse since we have actively tried to deal with it. For all the apparent pressure for performance-related rewards, the amounts involved have surged.

Does this mean that we've misapplied agency theory? Possibly (and I would certainly question - for different reasons - whether performance-related rewards actually deliver for the notional 'principals') but perhaps it has ben poorly applied mainly in the sense that we've been looking in the wrong place. After all, fund managers are agents too. And they are both a) judged on short-term timescales themselves and b) paid highly. So wouldn't executive remuneration arrangements that reinforce the idea that high rewards are necessary and encourage a focus on short-term results be what we expect them to promote? Just asking, like.

Finally, in a similar vein, recent events lead me to query the theoretical framework I was previously quite impressed by which is laid out in Political Power and Corporate Control. The argument is broadly that there are three core constituencies in governance - investors, managers and employees - and depending on their relative strengths they will tend to ally in certain combinations. So in a country like Germany where employees have to some extent shared interests with management because of the governance structures, they will tend to ally against investors. Whereas in a country like the US where both employees an investors are shut out of power in governance they ally against management (think of the extent of union involvement in shareholder activism there).

So far so good, but then in these terms the UK ought to develop along the same lines as the US. Yet in reality examples like Cadbury demonstrate that actually management and employees often seem to find common cause against investors (though it didn't come to much in that case). Perhaps it's partly because labour still has some residual strength within companies. Perhaps I'm simplifying too much, and labour is beginning to see the possibility of allying with investors. Or maybe the framework needs to be applied a bit differently. But it doesn't seem to quite fit the UK in my opinion.

Whingefest

I'm not in the habit of beating up Labour, because I'm still convinced that it is the most important progressive force in politics, and my own politics are more labour movement oriented than anything else. But I feel an extended whinge is overdue.

Yesterday a mate of mine emailed me this excerpt from a speech John Denham (who I have actually always thought to be a decent and sensible bloke) gave:

'The left needs to stop holding up egalitarianism as the ideal. If we continue to believe that the egalitarian approach is really the right one, and we somehow have to find more cunning ways of getting there, we will fail.'

Of course the context in which his remarks were made may change the meaning somewhat, but the message is pretty clear. And it's a message that I find thoroughly depressing.

Being rather more pro-market than many other party members, I consider myself to be a fairly moderate Labour supporter. But this incessant drumbeat seeking to deny the ideals that motivate many of us to be involved with Labour at one level or another is dispiriting, and personally I think in the long-term does us no good. I have heard plenty of arguments over the years about the need to win on the centre ground, to pitch to the swing voters etc, and there is a lot of sense in them. But to deny that we are interested in a greater equality of outcomes either means a) I'm in the wrong party or b) we have lost our way.

Whilst I'm a bit ambivalent about the 50% top rate tax - on tactical grounds mainly - it was no surprise to me that Stephen Byers was straight out of the blocks to attack it. And this time it hammered home a thought to me that I should have had more often. Maybe the Right of the party is simply wrong.

It's easy to fall victim to the halo effect when considering senior politicians' views on a given policy. Just because Byers has been around a long time, and has demonstrated that he isn't attached to ideas for ideas' sake (hence the journey from Left to Right of the party), doesn't mean he has any particular insight. He also pushed for 'reform' of inheritance tax - something Labour duly embraced to a limited degree but to no advantage I can see except for the limited number of very rich people affected. In post-crisis world does it really look like this was a pressing concern?

Equally Labour's pitch to the aspirational voter is sensible provided that it doesn't overlook those lower down who simply need our support, or those who are motivated by fairness. I would argue that at present it is these latter two groups that Labour has problems with. The decline in support for Labour amongst, for want of a better term, the white working class is a big part of the problem. So is the desertion of the lefties who want a society that's a bit fairer, whether to the Greens, the Trots or to apathy. (Obviously there is a big overlap in these two groups).

My own personal low-point was the appointment of Digby Jones as trade minister. However politically 'clever' this must have seemed to someone somewhere I can't see it as anything other than a disaster. For one he queried government policy on the tax status of foreign nationals whilst a minister. I also bet it had precisely zero impact in terms of appealing to those swing voters. But to anyone in the trade unions it was a slap around the chops. In union terms the CBI has had bosses who are half-decent (Turner), bad (Diggers) and largely invisible (Chistopher Lambert or whatever ths current guy's name is). Diggers was a piece of work though, never missing an opportunity to stick the boot into the unions. What message did appointing him send to those of us who still think unions are a pretty good idea actually?

The weird affect of all this on me as a party member is that I almost feel I'm not welcome. I almost feel like my fingers are being prised off the pencil in the voting booth each time I read an unnamed minister come out with some guff about the need to not appear 'Old Labour' or anti-aspiration or whatever. And I can't believe that this is a feeling that isn't shared by others who aren't particularly on the Left of the party.