AGM season - what's going on?

As you may have noticed, it's an unusally combative AGM season this year. Already three companies - Bellway, RBS and Provident Financial - have lost the vote on their remuneration report, and a couple more have come very close. In addition there has been a string of AGMs where what would be sizeable oppose votes in a normal season (ie 20% upwards) have been registered.

There are several factors driving this. First, the pro-cyclical nature of much governance activism. Shareholders tend to lose interest in corporate governance issues in the good years - what's the point in arguing over a few mill for the chief exec if the company is doing well? In contrast they kick off in a downturn, especially when the clients are breathing down their neck.

Second, some companies are doing some genuinely stupid things. Amending or scrapping performance targets for bonus and incentive schemes to ensure they pay something out is never popular, but in a recession it's not something even the most acquiescent of fund managers is likely to tolerate. Likewise enhancing the pension of the departing head of a failed bank. (Incidentally, note the sectors that the three companies that have lost the vote come from - housebuilding, banking, subprime lending).

Finally, it's clear that institutional investors feel under pressure to up their game. Having been criticised by the Government and regulators, the industry's rhetoric has been cranked up a notch. Key figures in the industry have acknowledged that fund managers need to be willing to vote against more often.

There remain a couple of bigger questions that (as yet) aren't really getting asked. First, what impact are oppose votes having? They are only advisory, and don't give companies a clear instruction. Companies can even ignore them if they see fit. In practice they do seem to address issues of concern, though more radical critics would argue that it's just a bit of tweaking.

Second, is this a fundamental shift in investor behaviour or not? In terms of defeats for companies, the peak year was actually 2005. Given the scale of the financial crisis, might we not expect to see an even higher level of opposition? And will it continue once the economy picks up? Experience suggests that in the wake of a major crisis behaviour can be influenced for a long time after. But on the other hand there are some pretty engrained attitudes out there about pay (and governance in general) that may not be shifted, particularly if the economic picks up relatively quickly.

The really big question is whether anything could be fundametally different. Is there any scope to get large shareholders to act more like owners, and less like traders? If there is - and it's a bif if - it will take more than voting down a few remuneration reports.

Are pension scheme members panicking?

I've just stumbled across some interesting research presented by Schlomo Benartzi to a recent ABI conference (you can download it here, scroll down to the last presentation). Basically he has taken a look at what sort of behaviour participants in US savings plans (401ks etc) have been exhibiting during the financial crisis. A couple of things that are useful to know about 401k plans are that you can take loans out of the fund, and hardship withdrawals, features that are often touted as possible features for UK savings vehicles.

Anyway here are some key findings -

No significantly increased transfer activity (ie shifting investments around)
Participation rates in savings plans are actually going up
No significant increase in loans from funds
There is an increase in hardship withdrawals, but it's still a tiny amount of employees (less than 0.2% of the total) utilising the option
No wave of enquiries or web visits that might indicate panic amongst savers

Very interesting stuff. It does suggest that people think of their retirement savings as a distinct pot of money and are happy to leave it for the long-term. Also it doesn't provide support for the idea that we should make it easier for people to access these savings early. I think this is an important point, as I think the industry would like to push the consumer down this path. The fact that the punters don't exercise the choice to access their money early demonstrates that in practice fears (which I shared) that people would deplete their savings ahead of retirement are misplaced. The one remaining question in my mind is whether insurers etc would charge more for these unwanted features. If not, then I don't see much of a problem. (Of course this might change if you started getting newspaper articles in the personal finance sections of the paper telling you how to leverage your savings).

Anyway, interesting stuff.

Pee on the bankers

One of the most famous Nudges meets the desire for retribution.

PADA investment consultation

I'm sad, but I was genuinely a bit excited when I found out the Personal Accounts Delivery Authority had (finally) issued its consultation paper on te investment arrangements for the scheme. You can download it here (PDF). Lots of interesting stuff in there, including an appendix on what behavioural economics suggests about investment choice. Geeky thrills!

The Speculation Economy

From the last page of the book:

When corporate economies are ruled by concentrated ownership, the responsibility for success or failure is primarily on those who own the controlling interest. WHen an economy is ruled by a stockmarket characterised by the dispersal of ownership throughtout the society, responsibility shifts. Members of the speculation economy typically treat their participation in American corporate capitalism as a private matter with their decisions to be made on the basis of their own self-interest and without much regard for the behaviour or decisions of others. But the nature and power of the speculation economy make the well-being of corporate America and, with it, the financial health of the nation, a matter of public concern. Most Americans participate in the speculation economy in one way or another. It is we who bear the responsibility for the consequences. It is we who create the demands of the market, who shape the incentives that drive corporate management. Perhaps the most important lesson of the history of the development of American corporate capitalism is that the continuing strength and health of the American corporate economy and thus American society requires market behaviour that encourages management to work for the long-term economic welfare of their businesses, their people and thus of the nation. Those incentives can only be provided by the market for, in the end, the market is the master.

The speculation economy is ours. It is what we make of it.

Homer Hornby

I've spotted a great line in the select committee report on the banking crisis. It's from ex-HBOS chief exec Andy Hornby, in response to criticisms of the bank's approach to risk management:

"I really do believe we listened to siren voices very carefully." (para 47 if you're interested)

Err, Andy, siren voices are the ones that lure you onto the rocks. You don't want to listen to them even a little bit. You should get someone to fill your ears with wax rather than listen to them, or tie yourself to something so you can't do any damage if you do hear them.

TUC trustee conference

Blimey, is it that time of the year already? A few bits about the TUC's forthcomng annual trustee conf below, more details and registration here.

Tuesday 30 June 2009, Congress House, London

In this time of financial turmoil, what are the prospects for pensions? And what can trustees do to steer pension savings through the storms and invest responsibly for the long-term future? Trustees, trade unions, employers and governments have been wrestling with these questions as the recession hits company balance sheets and investments.

This conference aims to provide trustees with informed commentary from leaders in the pensions and investment fields. It is an important opportunity to find out about and debate the latest developments in pensions policy, regulation and investment.

The conference will be chaired by Kay Carberry, TUC Assistant General Secretary, and the high-profile programme of speakers includes:

Rosie Winterton MP, Minister for Pensions and the Ageing Society

Brendan Barber, TUC General Secretary

Jeannie Drake, Acting Chair of the Personal Accounts Delivery Authority

David Norgrove, Chair of the Pensions Regulator

Nigel Peaple, Director of Policy at the NAPF

Gillian Tett, Capital Markets Editor, Financial Times

Colin Melvin, Chief Executive of Hermes Equity Ownership Services

John Evans, General Secretary of TUAC; the Trade Union Advisory Committee to the OECD

The conference is also a valuable opportunity to meet fellow trustees, trade unionists and pensions and investment experts to exchange information and experience. A series of tailored workshops will allow delegates to get into more depth on some of the issues, and the drinks reception at the end of the day is a great chance to meet fellow delegates and share thoughts over a glass of wine.