Hat-tip: Nigel
Saturday, 10 October 2009
Friday, 9 October 2009
Walker Review submissions
The Walker Review is making submissions available online here, though apparently only of the organisation agrees to their submission being public. There are some notable absences, but perhaps some organisations feel they have been more effective lobbying behind the scenes. Anyway, though I'd point a couple out - Unite and Bob Monks (both PDFs).
Thursday, 8 October 2009
Short-termism: another blast from the past
Not surprisingly, we have quite a few books kicking around at work about governance and related issues. I really ought to have a proper hunt through these before my regular Amazon splurges, as sometimes we already have copies of things I want to read.
A good example is Short-Termism On Trial by Paul Marsh, which I now have two copies of at home, having ordered one before realising that we have a work copy. It is worth a read as it represents a fairly comprehensive stab at this regularly re-occuring criticism of the company-shareholder relationship in markets like the US and UK. It makes a pretty good case that actually a lot of the criticisms voiced don't have much evidence to back them up. And it argues that if there is a problem then it is companies, rather than investors, that are at fault. I'm not entirely convinced, but I can't think of a comparably well-researched case for the prosecution.
It's also worth a read just to remind yourself that there is nothing much new in the current debate about ownership. Just a few excerpts as examples that not much has changed:
Amongst the favourite suggestions are disenfranchising shareholders who have held their shares for less than, say, a year...
A recurring theme in the current UK debate (!) is that the problems of short-termism, whether they be perceptions or reality, would be greatly ameliorated if shareholders acted more like "owners".
[E]ven in an ideal world of excellent communications and dialogue between companies and institutions, it would still be very difficult for fund managers to have the detailed knowledge required to intervene successfully in a firm's affairs.
Masterchef The Professionals - important!
1. Please note that this programme is not comparable to things likes 'Ghost-hunting with McFly' or whatever. By 'the professionals' they mean trained chefs, not The Professionals. So do not expect to see Bodie and Doyle battling it out in a restaurant kitchen. If that did happen presumably it will be called Celebrity Masterchef: The Professionals.
2. Greg Wallace has added another string to his bow in this series. In addition to being required to perform his traditional ' dessert gurn', he is also employed as a professional echo for Michel Roux Jnr.
2. Greg Wallace has added another string to his bow in this series. In addition to being required to perform his traditional ' dessert gurn', he is also employed as a professional echo for Michel Roux Jnr.
Reversing the 'tax raid' on pensions
I dunno how much we should read into this, given the total abscence of detail. But in general it does suggest again that the Tories are more interested in posturing than serious pension reform.
First up, what is the policy meant to achieve? It cannot, for example, repair the damage done to defined benefit schemes, finance directors will not suddenly re-open them because they have a bit more investment income. It will therefore marginally increase the funding position of these schemes. This is clearly not a bad thing, but not a particularly exciting objective.
Equally it will provide a bit more income for the many more people who are now in DC schemes. That may or may not make a difference. A bit more dividend income certainly won't offset the sort of falls we saw in share prices in recent years. Again obviously better to have than not, but not really a big contribution to the pensions problem IMO.
Secondly, who is going to benefit? If pension funds get a few extra quid, it benefits the members of these schemes. But the stats out there suggest that membership is skewed towards full-time male employees (and union members...!). Until Personal Accounts kick in this will remain the case, and the effect will therefore be to give a bit more money to those people already in pension schemes over those that are not. Is this really a sensible use of money if we want to spend more on pensions? Would it not be better to simply spend a bit more on the state pension, since we know everyone will get it?
First up, what is the policy meant to achieve? It cannot, for example, repair the damage done to defined benefit schemes, finance directors will not suddenly re-open them because they have a bit more investment income. It will therefore marginally increase the funding position of these schemes. This is clearly not a bad thing, but not a particularly exciting objective.
Equally it will provide a bit more income for the many more people who are now in DC schemes. That may or may not make a difference. A bit more dividend income certainly won't offset the sort of falls we saw in share prices in recent years. Again obviously better to have than not, but not really a big contribution to the pensions problem IMO.
Secondly, who is going to benefit? If pension funds get a few extra quid, it benefits the members of these schemes. But the stats out there suggest that membership is skewed towards full-time male employees (and union members...!). Until Personal Accounts kick in this will remain the case, and the effect will therefore be to give a bit more money to those people already in pension schemes over those that are not. Is this really a sensible use of money if we want to spend more on pensions? Would it not be better to simply spend a bit more on the state pension, since we know everyone will get it?
Wednesday, 7 October 2009
Pensions geekery
1. An interesting intervention by Aviva - calling for flat rate tax relief on pension contributions - highlighted by the TUC.
2. A bit of analysis of the Tories proposals on state pension age here, here and here.
2. A bit of analysis of the Tories proposals on state pension age here, here and here.
Annual elections - what is the big deal?
I've got to say I'm a bit perplexed by some commentary today from some UK institutions about the idea of annual election of directors. Such as:
Eh? But some companies already have annual election of directors, just a few off the top of my head - BP, Pearson, Vodafone, Unilever. Are all these companies 'unstable' because of it? The benefit of annual elections is that if there is a problem at a company that arises in the short-term, you use your vote to express concern at a particular director's role, or even ultimately vote them out. That is not possible when they are on a three-year cycle - see for example the current ITV debacle. It is no extra work for shareholders (unless you consider voting 'work'), but it does mean that you can hold directors accountable immediately if necessary. In practice I think it would be very rarely exercised, but it should be there.
Now you could argue that the vote isn't that important, and that actually shareholders can remove directors without resorting to voting them out. True but a) it is not always the case that director will just roll over and b) follow this through logically - what is the point of voting rights in the first place then?
My personal view is that opposition to what seems to be a perfectly reasonable reform stems from an unfortunate direction the institutional share-owner culture has taken in recent years. In the understandable desire to avoid being seen as 'radical', 'political' or 'gadflies' some shareholders bend over backwards to demonstrate their support for management. I understand this - we shouldn't start from the position that companies are 'wrong' and that shareholders need to 'do something'. But I think this tendency has now gone too far in the other direction.
This can be seen in the utterly unimpressive voting record of most big institutions on remuneration - even though they know claim it is obvious that pay policies were flawed, and can tell you exactly what the flaws were. Well why didn't you use your voting rights to challenge them then? And don't claim that you were active behind the scenes, because we all know that we have failed to tackle executive pay inflation.
It can also be seen in their default position of management support when a union or NGO takes an issue to shareholders (again check out the voting records on shareholder resolutions raised by such groups). Now once again you can make the case that this is the 'responsible' thing to do - not supporting a challenge to management. But I personally fundamentally disagree, and I believe that institutions that routinely oppose shareholder resolutions effectively legitimise management complacency on some important issues. And having been involved in several such campaigns, I can tell you that from the proponent's point of view it simply feels like you have been stabbed in the back - especially when it's an institution that talks a lot about ESG issues (and there are several guilty parties here).
ho hum.
"Annual re-elections are potentially distracting to the board, (and) create instability and additional work for the shareholders without any material benefit. So it's not a good idea," said Colin Melvin, chief executive of Hermes Equity Ownership Services.
Eh? But some companies already have annual election of directors, just a few off the top of my head - BP, Pearson, Vodafone, Unilever. Are all these companies 'unstable' because of it? The benefit of annual elections is that if there is a problem at a company that arises in the short-term, you use your vote to express concern at a particular director's role, or even ultimately vote them out. That is not possible when they are on a three-year cycle - see for example the current ITV debacle. It is no extra work for shareholders (unless you consider voting 'work'), but it does mean that you can hold directors accountable immediately if necessary. In practice I think it would be very rarely exercised, but it should be there.
Now you could argue that the vote isn't that important, and that actually shareholders can remove directors without resorting to voting them out. True but a) it is not always the case that director will just roll over and b) follow this through logically - what is the point of voting rights in the first place then?
My personal view is that opposition to what seems to be a perfectly reasonable reform stems from an unfortunate direction the institutional share-owner culture has taken in recent years. In the understandable desire to avoid being seen as 'radical', 'political' or 'gadflies' some shareholders bend over backwards to demonstrate their support for management. I understand this - we shouldn't start from the position that companies are 'wrong' and that shareholders need to 'do something'. But I think this tendency has now gone too far in the other direction.
This can be seen in the utterly unimpressive voting record of most big institutions on remuneration - even though they know claim it is obvious that pay policies were flawed, and can tell you exactly what the flaws were. Well why didn't you use your voting rights to challenge them then? And don't claim that you were active behind the scenes, because we all know that we have failed to tackle executive pay inflation.
It can also be seen in their default position of management support when a union or NGO takes an issue to shareholders (again check out the voting records on shareholder resolutions raised by such groups). Now once again you can make the case that this is the 'responsible' thing to do - not supporting a challenge to management. But I personally fundamentally disagree, and I believe that institutions that routinely oppose shareholder resolutions effectively legitimise management complacency on some important issues. And having been involved in several such campaigns, I can tell you that from the proponent's point of view it simply feels like you have been stabbed in the back - especially when it's an institution that talks a lot about ESG issues (and there are several guilty parties here).
ho hum.
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